The IRS updated Publications 502 and 503 for the 2021 tax year. Publication 502 explains the medical expenses that are deductible on a federal income tax return. Publication 503 explains the requirements that must be met to claim the dependent care tax credit on a federal income tax return for child and dependent care expenses.
Few changes were made to the 2020 version of Publication 502. Inflation- adjustments dollar amounts were updated and clarifications were added to the deductibility of drug treatment expenses. While Publication 502 is intended only for identifying deductible medical expenses, many use it as a guide for which expenses may be reimbursed from a health flexible spending account, health reimbursement account or health savings account. This approach must be taken lightly for some expenses (such as insurance premiums), may not be eligible for reimbursement from account-based plans.
Publication 503 was revised to take into account dependent care assistance changes created by the American Rescue Plan Act and the Consolidated Appropriations Act of 2021. The Publication now makes clear that work from home is considered “work-related” for needing a dependent care expense. There are also clarifications addressing temporary work absences, summer day camps and tutoring programs. Much like Publication 502’s application to account-based plans, caution should be used when referring to Publication 503 for identifying expenses eligible for reimbursement from a dependent care flexible spending account plan.
The 2021 Publication 502 may be accessed by clicking here.
The 2021 Publication 503 may be accessed by clicking here.
