The IRS issued an information letter confirming that flexible spending account expenses must be for medical care in order to be eligible for reimbursement.
A taxpayer asked the IRS if the cost of wellness coaching would eligible for reimbursement from a HSA, FSA or other tax-favored account if a physician diagnoses the patient with a disease or chronic health risk and recommends the coaching to alleviate or prevent the diagnosis. The IRS did not answer the specific question about health and wellness coaching but did provide general information about reimbursements under FSAs/HSAs.
An expense qualifies as medical care if it is for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting a structure or function of the body. An expense is considered to prevent disease only if there is present existence or an imminent probability of developing a disease, physical defect, mental defect, or illness.
Services that are simply beneficial to an individual’s general health are personal and not for medical care. Services that have no purpose other than to treat a specific disease, illness or mental defect may be a medical expense.
The IRS explains that objective factors should be used to determine if an expense that is typically personal in nature was incurred for medical care. Such factors may include
- The motive or purpose for the expenditure
- A physician’s diagnosis of a medical condition and recommendation of the item as a treatment or mitigation
- The relationship between the treatment and the illness
- The treatment’s effectiveness
- The proximity in time to the onset or recurrence of a disease.
The IRS information letter is not formal guidance but does provide useful information for evaluating the eligibility of expenses for reimbursement under FSAs and HRAs. A copy of the letter may be accessed by clicking here.