Topic: PPE announced as qualified medical expense
On March 26, the IRS announced that personal protective equipment (PPE) — such as masks, hand sanitizer, and sanitizing wipes for the primary purpose of preventing the spread of COVID-19 — are treated as medical care under Section 213(d) of the Internal Revenue Code (IRC). While deemed worthy of the weekend news, the announcement comes with wrinkles that make the relief seem better on paper than it is in reality. For employers, the announcement means that individuals can seek reimbursement from employer-sponsored Health Flexible Spending Accounts (FSAs) and Health Reimbursement Accounts (HRAs) for periods beginning on or after January 1, 2020. As a practical matter though, this raises timing and substantiation questions.
For individuals, the announcement means that they can include PPE expenses in determining their itemized deductions on their 2020 individual tax return. Medical expenses, including expenditures for PPE, that exceed 7.5% of adjusted gross income may be claimed as an itemized deduction. However, relatively few individuals still itemize deductions now that the standard deduction exceeds $12,000 for a single individual, $18,000 for a head of household, and $24,000 for a married couple filing jointly.
In addition, individuals may be able to obtain tax-free distributions from their Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) for PPE expenses.
Timing of Claim. Ordinarily, most Health FSAs and HRAs have already reached or are very close to reaching the last day for filing requests for reimbursement of expenses incurred during 2020. Employers and their FSA/HRA administrators will need to consider whether to extend the deadline for submitting 2020 claims in order to reimburse PPE expenses incurred in 2020. The purchase of the bulk of PPE occurred early in 2020 when there was a rush to acquire masks and stock up on hand sanitizer and sanitizing wipes. Because of the timing of these expenditures, for the IRS announcement to have much of an impact, this extension may be needed.
However, in spite of their stated deadlines, when determining how to administer the deadline for submitting 2020 claims, employers and their FSA/HRA administrators also will need to factor in the individualized extended deadlines to submit ERISA claims and appeals, which were recently clarified in Notice 2021-01 (i.e., beginning on March 1, 2020, the deadline to submit claims and appeals under ERISA plans ends on the earlier of one year from the ordinarily applicable deadline or 60 days from the end of the national emergency, which is ongoing). Health FSAs and HRAs are ERISA group health plans, and the submission of a reimbursement request from such accounts constitutes the filing of an ERISA claim for benefits. Thus employers may very well need to accept reimbursement requests for expenses incurred in 2020, even after the normal claims submission deadline, in accordance with this most recent federal agency guidance that provides for such deadline extensions during the current COVID-19 national emergency.
Discussed: PPE announced as qualified medical expense