The Internal Revenue Service (IRS) recently announced that it considers personal protective equipment (PPE) purchases as qualified medical expenses. Namely, examples of PPE include masks, hand sanitizer, and sanitizing wipes. These items are medical care under Section 213(d) of the Internal Revenue Code (IRC). The new guidance allows individuals to seek reimbursement for those items under Flexible Spending Accounts (FSAs) and Reimbursement Accounts (HRAs). Reimbursement, however, is only available for periods beginning on or after January 1st, 2020. The new guidance follows an earlier IRS update to its Employee Retention Credit (ERC).
Employer Considerations
The following contains information that employers should consider regarding qualified medical expenses under the new IRS guidance.
Timing Considerations – Employers and their FSA/HRA administrators should consider possibly extending the deadline for workers submitting 2020 claims. Typically, the deadline for submitting any prior year’s expenses would have already passed or been arriving soon. Accordingly, the extension would allow employers to reimburse the total amount of PPE expenses incurred by employees in 2020.
Substantiation Requirements – Employers and FSA/HRA administrators also need to decide what an acceptable substantiation of a PPE expense is. This determination will define what qualified medical expenses are and if reimbursement is available. Health FSAs and HRAs typically require a written statement from an independent third party stating the expense incurred. The amount of the expense is also usually required. Thus, receipts or other invoices documenting the expenditures are necessary to obtain reimbursement. However, given the amount of time between January 1st, 2020, and this announcement, the IRS could allow reimbursement without substantiation.
Plan Amendments – Many Health FSAs/HRAs already define qualified medical expenses as costs incurred for medical care as defined in the IRC. For any plans with that broad definition, the latest IRS announcement does not require any amendments to its language. However, if the language is limiting, employers and FSA/HRA administrators need to ensure that it complies with the new guidance. Before December 31st, 2021, those amendments must occur to have an effective date of January 1st, 2020.