IRS Guidance on Nutrition, Wellness, and General Health Expenses

The Internal Revenue Service (IRS) has recently highlighted that costs associated with nutrition, wellness, and general health do not typically qualify as reimbursable medical expenses under Section 213 of the Internal Revenue Code. In its communication, including a news release and FAQs, the IRS emphasizes two key points:

1. Reimbursable medical expenses must be directly related to diagnosis-specific activities or treatments.
2. Employers should be wary of entities misrepresenting the eligibility of food and wellness expenses for reimbursement through tax-advantaged plans.

Understanding Qualified Medical Expenses

Qualified medical expenses, as defined under Code section 213(d), may be reimbursed through health savings accounts (HSAs), health flexible spending accounts (FSAs), or health reimbursement arrangements (HRAs). These expenses generally cover costs associated with the diagnosis, treatment, mitigation, or prevention of disease, and may include payments to medical practitioners, medical equipment, supplies, diagnostic devices, and prescribed medicines or drugs.

However, the IRS clarifies that personal expenses beneficial to general health, such as general wellness or nutritional costs, do not fall under the category of reimbursable medical expenses.

IRS Clarifications and Warnings

The IRS has raised concerns about the potential for taxpayer misinformation regarding the reimbursement of nutrition or wellness expenses as medical expenses. A specific concern is companies charging fees to provide doctor’s notes for taxpayers, misleadingly suggesting that such documentation can transform personal expenses into reimbursable medical expenses. The IRS insists that a doctor’s note, especially one based on self-reported health information, does not convert personal expenses into qualified medical expenses.

The IRS’s FAQs provide clarity by listing examples of expenses that do not qualify for reimbursement, including costs for general exercise programs, weight loss programs not prescribed by a physician for a specific disease, and food or beverages that do not treat an illness.

Implications for Employer-Sponsored Benefit Plans

For employer-sponsored benefit plans offering FSAs or HRAs, it’s crucial to ensure only qualified medical expenses are reimbursed, and all claims are adequately substantiated before reimbursement. The IRS’s focus on the integrity of FSA claim substantiation serves as a reminder of the high standards required to maintain the tax-qualified status of these plans.

Action Steps for Employers

Employers should:

• Verify with their service providers that their plans are designed to reimburse only qualified medical expenses.
• Ensure the proper substantiation of all claims, particularly for those processed through debit cards or at the point of sale.

Moreover, employers are advised to exercise caution with vendors promoting the use of pre-tax dollars for nutritional or wellness expenses based on provided doctor’s notes. This practice not only risks the tax-qualified status of the plan but also potentially misleads employees about the nature of reimbursable expenses.

Employers are encouraged to stay informed on IRS guidelines to ensure their benefit plans comply with the regulations and continue to offer valuable, tax-advantaged health benefits to their employees.

Connect with NARFA for Expert Guidance

Navigating IRS guidelines and ensuring your benefit plans comply with current regulations can be challenging. Contact NARFA today for expert advice and support tailored to your business’s needs. Our team is ready to assist you in managing your health benefit plans efficiently and effectively, ensuring you maximize the benefits while remaining compliant. Reach out now to secure your business’s future.