In response to the Delta variant, face masks are once again at the forefront of efforts to prevent further spread of COVID-19. When used for this purpose, they are considered Personal Protective Equipment (PPE), which became a qualified medical expense under Section 213(d) of the Internal Revenue Code in March, 2021.
On March 26, the IRS released Announcement 2021-7, which allows specific PPE 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 account include face masks, hand sanitizers, and sanitizing wipes when purchased for personal use by the participant or a qualified dependent (spouse or children).
Under IRC Section 213(d), taxpayers may not claim the expense on their tax return and also submit a claim for reimbursement of the same expense from their health FSA, HRA, or HSA. In other words, no double-dipping.
Plan Amendments May Be Required
Depending on the specific language used in the plan document regarding IRC Section 213(d) medical expenses, some plans may need an amendment to allow reimbursements for COVID-19 PPE. Plans needing an amendment must adopt it by the last day of the first calendar year following the plan year for which the amendment is effective. For calendar year plans, in other words, the amendment is required by December 31, 2021 in order to have an effective date of January 1, 2020, or by December 31, 2022 to have an effective date of January 1, 2021. The last date on which a retroactive amendment can be adopted is December 31, 2022.
Quoting from IRS 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.”
For more information about PPE as a qualified medical expense and related changes to plan documents, contact your qualified benefits counsel.