The IRS has updated their frequently asked questions (FAQs) addressing whether certain costs related to nutrition, wellness, and general health are medical expenses under IRC section 213 that
may be paid or reimbursed under a health savings account (HSA), health flexible spending arrangement (FSA), Archer medical savings account (Archer MSA), or health reimbursement arrangement
(HRA).

IRC section 213 generally allows a deduction for expenses paid during the taxable year for medical care if certain requirements are met.Generally, taxpayers deductible medical expenses must exceed 7.5% of their Adjusted Gross Income for the next dollar to be deductible and the totality of their itemized deductions must exceed the standard deduction before any tax benefits can be realized. Furthermore, only unreimbursed medical expenses are eligible to be claimed on Schedule A. Thus, the vast majority of taxpayers are unable to meet these thresholds, unless they have catastrophic medical expenses.

Expenses for medical care also are eligible to be paid or reimbursed under an HSA, FSA, Archer MSA, or HRA. However, if any amount is paid or reimbursed under an HSA, FSA, Archer MSA, or HRA, a taxpayer cannot also deduct the amount as a medical expense on the taxpayer’s federal income tax return. Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes. They also include the costs of medicines and drugs that are prescribed by a physician.

Medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They do not include expenses that are merely beneficial to general health. The following FAQs were added to irs.gov on March 17, 2023.

Q1. Is the cost of a dental exam a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A1. Yes, because the dental exam provides a diagnosis of whether a disease or illness is present.
Q2. Is the cost of an eye exam a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A2. Yes, because the eye exam provides a diagnosis of whether a disease or illness is present.
Q3. Is the cost of a physical exam a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A3. Yes, because the physical exam provides a diagnosis of whether a disease or illness is present.
Q4. Is the cost of a program to treat a drug-related substance use disorder a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A4. Yes, because the program treats a disease (substance use disorder).
Q5. Is the cost of a program to treat an alcohol use disorder a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A5. Yes, because the program treats a disease (alcohol use disorder).
Q6. Is the cost of a smoking cessation program a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A6. Yes, because the smoking cessation program treats a disease (tobacco use disorder).
Q7. Is the cost of therapy a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A7.Yes, if the therapy is treatment for a disease. For example, an amount paid for therapy to treat a diagnosed mental illness is a medical expense, but an amount paid for marital counseling is not.
Q8. Is the cost of nutritional counseling a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A8. Yes, but only if the nutritional counseling treats a specific disease diagnosed by a physician (such as obesity or diabetes). Otherwise, the cost of nutritional counseling is not a medical expense.
Q9. Is the cost of a weight-loss program a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A9. Yes, but only if the program treats a specific disease diagnosed by a physician (such as obesity, diabetes, hypertension, or heart disease). Otherwise, the cost of a weight-loss program is not a medical expense.
Q10. Is the cost of a gym membership a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A10. Yes, but only if the membership was purchased for the sole purpose of affecting a structure or function of the body (such as a prescribed plan for physical therapy to treat an injury) or the sole purpose of treating a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease). Otherwise, the cost of a gym membership is for the general health of the individual and is not a medical expense.
Q11. Is the cost of exercise for the improvement of general health, such as swimming or dancing lessons, a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A11. No, because the exercise, even if recommended by a doctor, is only for the improvement of general health.
Q12. Is the cost of food or beverages purchased for weight loss or other health reasons a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA? A12. Yes, but only if 1) the food or beverage doesn’t satisfy normal nutritional needs,
(2) the food or beverage alleviates or treats an illness, and (3) the need for the food or beverage is substantiated by a physician. The medical expense is limited to the amount by which the cost of the food or beverage exceeds the cost of a product that satisfies normal
nutritional needs. If any of the three requirements is not met, the cost of food or beverages is not a medical expense.
Q13. Is the cost of nonprescription (over-the-counter) drugs and medicines a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A13.Yes. Except for the cost of insulin, the cost of a drug that is not prescribed by a physician is not a medical expense that is deductible under IRC section 213. However, the cost of over-the-counter drugs and also menstrual care products may be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA.
Q14. Is the cost of nutritional supplements a medical expense that can be paid or reimbursed by an HSA, FSA, Archer MSA, or HRA?
A14. Yes, but only if the supplements are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician. Otherwise, the cost of nutritional supplements is not a medical expense.

While much of the information shared by the IRS in the FAQ is not new some of the answers do bring a new level of clarification for those individuals, for example, who have Downs Syndrome and are dealing with obesity or diabetes or need physical and occupational therapy. Of particular relevance are the answers to Questions # 7-12 and 14. Please communicate with your physician to assure you have the proper documentation to support medical deductions for the categories discussed in these specific questions and answers.

The IRS is warning of a new text scam created by thieves that trick people into disclosing bank account information under the guise of receiving the $1,200 Economic Impact Payment. The IRS reminds taxpayers that neither the IRS nor state agencies will ever text taxpayers asking for bank account information so that an EIP deposit may be made.

“Criminals are relentlessly using COVID-19 and Economic Impact Payments as cover to try to trick taxpayers out of their money or identities,” said IRS Commissioner Chuck Rettig. “This scam is a new twist on those we’ve been seeing much of this year. We urge people to remain alert to these types of scams.”

The scam text message states: “You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment…” The text includes a link to a fake phishing web address.
This fake phishing URL, which appears to come from a state agency or relief organization, takes recipients to a fraudulent website that impersonates the IRS.gov Get My Payment website. Individuals who visit the fraudulent website and then enter their personal and
financial account information will have their information collected by these scammers.

People who receive this text scam should take a screen shot of the text message that they received and then include the screenshot in an email to phishing@irs.gov with the following information:
• Date/Time/Timezone that they received the text message.
• The number that appeared on their Caller ID.
• The number that received the text message.

The IRS does not send unsolicited texts or emails. The IRS does not call people with threats of jail or lawsuits, nor does it demand tax payments on gift cards.

On August 8, 2020, the President issued a memorandum directing the IRS to use its authority under IRC section 7508A to defer the withholding, deposit, and payment of the employee’s share of Social Security taxes (the 6.2% FICA tax that is withheld from employee wages). The IRS recently issued guidance that leave a number of questions unanswered or simply create more confusion.

Of particular interest is what is not included in Notice 2020-65:

1) The notice does not provide any elections for employees. The relief provision applies to the employer, not the employee. The notice identifies the employer as the Affected Taxpayer. There is no option for the employee to make an election to have the taxes continue to be withheld, and does not require the employee to make an affirmative election to have the withholding of taxes deferred. Employees who have their take home pay temporarily increased by not having Social Security taxes withheld will experience a 12.4% drop in take home pay after January 1, 2021 when double the amount of Social Security taxes begins to be withheld.

2) The notice does not state whether or not the deferral of taxes is voluntary. It simply states that the withholding and payment deadline is deferred. IRC section 7508A allows the IRS to extend the filing and payment deadline for taxes due to a presidentially declared disaster, but does not require taxpayers to delay the filing and payment of their taxes. The law appears to allow employers to continue to withhold and pay the tax at the time the wages are paid. In fact, the IRS notice specifically states: “If necessary, the Affected Taxpayer may make arrangements to otherwise
collect the total Applicable Taxes from the employee.” An employer may decide it is too big a risk not to withhold the tax and that it is necessary to continue to withhold the taxes from employee wages to insure that the funds will be available to pay the tax when payment is due.

3) The notice does not address the related employer rules.

4) The notice does not address how the deferral of withholding and payment of taxes will be reported on Form 941, Employer’s Quarterly Federal Tax Return.

5) The notice does not address a situation where the employee separates from service prior to the employer’s ability to withhold the taxes from employee wages. A footnote in the IRS notice says the deposit obligation for employee Social Security tax does not arise until the tax is withheld. Accordingly, by postponing the time for withholding the tax, the deposit obligation is delayed. However, Regulation section 31.3102-1(a) says the employer must collect the tax from the employee in some way, even if the wages are paid in something other than money, and pay over the tax to the government. The guidance does not provide any liability relief for
employers who are unable to eventually collect the tax from employees who quit prior to January 1, 2021.

6) The notice does not address a situation where the employer decides to not defer the withholding and payment of the employee’s share of Social Security tax, and then Congress later decides to forgive the tax liability. There will likely be political pressure on Congress to enact payroll tax forgiveness to avoid a decline in employee take home pay after January 1, 2021. By not taking advantage of the relief provided for in the notice, employees could eventually lose out on tax forgiveness.

7) The notice does not explain how the relief benefits the employer, even though the relief applies to the employer. By not withholding the tax, the employee’s take home pay is increased. Thus, the employer’s net payroll cost savings is zero. The relief is clearly for the employee, even though it is the employer who decides whether or not to take advantage of the relief. The employer’s relief appears to be limited to making the employee happy due to an increase in take home pay, which could be an incentive for the employer to take advantage of the relief.