IRS Warns Against Reimbursing Personal Expenses in Health Accounts

IRS Warns Against Reimbursing Personal Expenses in Health Accounts
Cover Image Source: Pexels | Photo by Nataliya Vaitkevich

In a recent bulletin, the Internal Revenue Service (IRS) issued a stern warning to the public regarding the deductibility or reimbursement of personal expenses, particularly in the field of health-related spending. According to a report by AL.com, the IRS emphasized that personal expenses are not reimbursable under health accounts.

Image Source: Photo by Pavel Danilyuk |Pexels
Image Source: Photo by Pavel Danilyuk |Pexels

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Personal expenditures such as food and general wellness purchases do not qualify for reimbursement under various health-focused financial arrangements, including health flexible spending or reimbursement arrangements, health savings accounts, or medical savings accounts.

The alarm was sounded following the discovery of misleading advertising that suggested otherwise, potentially impacting millions of taxpayers. IRS Commissioner Danny Werfel stressed the importance of adhering to tax regulations surrounding medical expenses.

"Legitimate medical expenses have an important place in the tax law that allows for reimbursements. But taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don’t qualify as medical expenses," he stated.

Federal tax forms at the offices of the Internal Revenue Service November 1, 2005 | Getty Images | Photo Illustration by Scott Olson
Image Source: Federal tax forms at the offices of the Internal Revenue Service | Getty Images | Photo Illustration by Scott Olson

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One of the main issues highlighted in the report is the dubious practice of some companies claiming that a doctor's note can transform non-medical expenses, such as food and wellness products, into qualifying expenses for tax benefits. However, the IRS has debunked such claims, cautioning individuals that attempting to leverage such schemes could lead to unexpected tax liabilities.

The IRS provided an example to illustrate the potential consequences of attempting to claim non-qualifying expenses:

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Consider a scenario where a diabetic individual, striving to manage their blood sugar levels, opts for a diet comprising lower carbohydrate foods. They come across an advertisement promising that they can use pre-tax funds from their Flexible Spending Account (FSA) to purchase healthy food items if they engage with a particular company.

Upon contacting the company, they are informed that, for a fee, they can obtain a "doctor's note," which they can submit to their FSA for reimbursement of the food expenses incurred in their pursuit of a healthier diet. However, upon submitting the expense claim with the purported doctor's note, it is rejected, as food does not qualify as a medical expense, leaving the individual liable for unexpected tax obligations.

Image Source: Photo by Nataliya Vaitkevich | Pexels
Image Source: Photo by Nataliya Vaitkevich | Pexels

In light of these developments, the IRS urges individuals having questions regarding qualifying expenses to consult the agency's frequently asked questions (FAQs) on medical expenses related to nutrition, wellness, and general health. This resource can assist taxpayers in determining whether a particular expense qualifies as a legitimate medical expense under the prevailing tax laws.

Furthermore, taxpayers are advised to seek guidance from reputable financial and tax professionals to ensure compliance with applicable tax laws and regulations. By staying informed and vigilant, individuals can safeguard themselves against the pitfalls of erroneous tax claims and mitigate the risk of encountering unexpected tax liabilities.

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