The fight against COVID-19 has expanded to the purchase of personal protective equipment (PPE) items with employer-sponsored benefit accounts. On Friday, March 26, the IRS released Announcement 2021-7, which approves PPE purchased for the primary purpose of preventing the spread of COVID-19 as medical expenses under section 213(d) of the Internal Revenue Code.
The regulation allows specific items to be purchased with or reimbursed from a health Flexible Spending Account (FSA), Health Reimbursement Arrangement (HRA), or Health Savings Account (HSA). It also allows the items to be claimed as tax-deductible purchases if not reimbursed by a tax-advantaged benefit account.
COVID-19 PPE Items
Eligible items for reimbursement from an FSA, HRA, or HSA include masks, hand sanitizers, and sanitizing wipes when purchased for personal use by the participant or a qualified dependent (spouse or children).
Taxpayers may not claim the expense on their tax return under section 213(d) and also submit a claim for reimbursement from their health FSA, HRA, or HSA. In other words, no double-dipping.
For reimbursement from an FSA, HRA or HSA, participants should submit receipts to verify their purchase.
Plan Amendments May Be Required
Depending on plan document language around IRC Section 213(d) medical expenses, some plans may need an amendment to allow reimbursement of COVID-19 PPE expenses. Plans needing an amendment to allow for this IRS Announcement must adopt an amendment by the last day of the first calendar year following the plan year for which the amendment is effective. For calendar year plans, the amendment would be required by December 31, 2021 in order to have an effective date of January 1, 2020 and December 31, 2022. Retroactive amendments may not be adopted after December 31, 2022.
Quoting from Announcement 2021-7:
“Group health plans may be amended pursuant to this announcement if the amendment is adopted not later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective, no amendment with retroactive effect is adopted after December 31, 2022, and the plan is operated consistent with the terms of the amendment, including during the period beginning on the effective date of the amendment through the date the amendment is adopted.”