IRS Releases Publication on Medical Expenses

December 10, 2007

The IRS recently released the 2007 version of Publication 502, which taxpayers use to determine what medical expenses are deductible on their tax returns. This publication also serves as a resource for determining what medical expenses are reimbursable under a Health FSA, Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA).

One revision in the 2007 version is the standard mileage rate for use of an automobile to obtain medical care. It is 20 cents per mile for 2007. The publication also clarifies that the cost of operating a specially equipped car for non-medical reasons is not deductible as a medical expense.

Benefit professionals should understand the role of Publication 502 in administering reimbursement accounts. The medical expense tax deduction focuses on the same Internal Revenue Code section as Health FSAs, HSAs and HRAs: §213. However, not every expense is both reimbursable and tax deductible. For example, insurance premiums are tax deductible but not reimbursable under a Health FSA; over-the-counter drugs are reimbursable but not tax deductible. Thus, prudent employers should not solely rely on this publication to determine what expenses would be reimbursed under these tax favored vehicles.

A copy of Publication 502 is available at www.infinisource.net/Infinisource/Benefit_Resources/docs/p502_2007.pdf. Infinisource is available to help employers with determining whether expenses are reimbursable. For more information on our Flexible Benefits Administration services, please contact us at salesssupport@infinisource.net or 800-779-6384.