April 8, 2021 | General | Posted by Bob Greene, Senior HR Industry Analyst at Ascentis
From the “In Case You Missed It” Department: Internal Revenue Announcement 2021-7
On March 26, 2021, the IRS issued Announcement 2021-7, which clarified that the purchase of personal protective equipment (PPE), such as masks, hand sanitizer and sanitizing wipes, for the primary purpose of preventing the spread of coronavirus, are considered deductible medical expenses. These rules, subject to certain restrictions, are retroactive to January 1, 2020.
The amounts paid for personal protective equipment are also eligible to be paid or reimbursed under health flexible spending arrangements (health FSAs), Archer medical savings accounts (Archer MSAs), health reimbursement arrangements (HRAs), or health savings accounts (HSAs).
While the announcement appears targeted at the diminishing number of individual taxpayers who itemize deductions AND have total deductible medical expenses exceeding 7.5 percent of their adjusted gross income (in time for the filing of their 2020 tax returns, now due May 17, 2021), its retroactive extension to withdrawals from FSAs/HRAs/HSAs makes it noteworthy to many more plan participants.
Group health plans, including FSAs and HSAs, which currently exclude PPE as a covered expense, must be amended to permit these expenses to be covered, but sponsors have an extended opportunity to make those amendments, which can be retroactive. Where the employer or group health sponsor wants to make these items covered back to the earliest date permissible (January 1, 2020), must complete their plan amendment process no later than December 31, 2021. Additionally, the plan must be adopted consistent with the terms of the amendment beginning on the effective date of the amendment through the date the amendment is adopted.
Benefits Communication Impact
The extensive series of legislative changes implemented since the beginning of the pandemic (FFCRA, CARES Act, CAA’21, ARPA’21) and IRS announcements such as this one have all included changes to various employer-sponsored benefit plans, from health plans, to FSAs/HSAs, dependent care plans, retirement plans (loans and withdrawals), and even tuition plans. Announcement 2021-7 is a good example of a new benefit available to employees that few of them will know about unless employers that decide to implement them communicate these changes in a regular and reliable way. Compared to mass e-mails or printed flyers mass mailed to employees’ homes, a well-promoted, well-organized and easily accessible employee portal (as the home page to employee self-service functionality) offers employers the best chance at socializing this news to the widest possible pool of impacted employees and their covered dependents.
Find the announcement here: https://www.irs.gov/pub/irs-drop/a-21-07.pdf
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Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (later acquired by Deloitte Consulting.)