COVID Protective Expenses Eligible for HSA Reimbursement

The IRS has issued guidance addressing whether amounts paid for certain personal protective equipment are treated as qualified medical expenses. 

In Announcement 2021-7, the IRS clarifies that the purchase of personal protective equipment—such as masks, hand sanitizer and sanitizing wipes—that are used for the primary purpose of preventing the spread of coronavirus are treated as amounts paid for medical care under Section 213(d) of the Internal Revenue Code. 

As such, amounts paid by an individual taxpayer for COVID-19 personal protective equipment for use by the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependents that are not compensated for by insurance or otherwise are deductible under Section 213(a) provided that the taxpayer’s total medical expenses exceed 7.5% of adjusted gross income. 

Since many taxpayers are unable to take advantage of the medical expense deduction because their expenses do not exceed 7.5% of their AGI, this break may be more advantageous for those with a health savings account (HSA). 

In that regard, the IRS advises that because these amounts are expenses for medical care under Section 213(d), the amounts paid for personal protective equipment are also eligible to be paid or reimbursed under HSAs, health flexible spending arrangements (FSAs), Archer MSAs or health reimbursement arrangements (HRAs).  

The IRS cautions, however, that if an amount is paid or reimbursed under an HSA, Archer MSA, HRA, health FSA or any other health plan, it is not deductible under Section 213. 

Finally, the IRS advises that group health plans, including health FSAs and HRAs, under the terms of which expenses for COVID-19 PPE may not be reimbursed, may be amended pursuant to the announcement to provide for reimbursements of expenses for COVID-19 personal protective equipment incurred for any period beginning on or after Jan. 1, 2020. 

On March 17, the IRS announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15 to May 17, 2021, and can postpone federal income tax payments for the 2020 tax year until then without penalties and interest, regardless of the amount owed.

Announcement 2021-7 will appear in Internal Revenue Bulletin 2021-15, dated April 12, 2021.