CPA Practice Advisor - 27

FEATURE
Health-Related Benefits Under the
By Mike D'Avolio, CPA, JD

THE CORONAVIRUS AID, Relief and Economic Security (CARES) Act was signed
into law on March 27, 2020, and provides broad economic relief to families
(stimulus payments, expanded unemployment compensation, and other
provisions) and small businesses (Paycheck Protection Program loans and
payroll tax credits, among others) impacted by COVID-19. The following article
discusses some of the health-related benefits under the CARES Act; review
the benefits and share these with your clients.
EXPANSION OF QUALIFIED
MEDICAL EXPENSES

INCREASED FLEXIBILITY IN SEC.
125 CAFETERIA PLANS

Effective for amounts paid after Dec. 31, 2019,
the definition of "qualified medical expenses" for
purposes of various tax-advantaged accounts has
been expanded. These include health savings
accounts (HSAs), Archer medical savings accounts
(MSAs), health flexible spending accounts (FSAs),
and health reimbursement arrangements (HRAs).
Qualified medical expenses now permanently
include over-the-counter medications without a
prescription, such as pain and allergy medication,
and the cost of menstrual care products, including
tampons, pads, liners, cups, sponges, or other
similar products.
Taxpayers should save receipts from these
purchases for their records and for submitting
claims for reimbursements.

According to IR-2020-95, the IRS has temporarily
loosened the rules around Sec. 125 cafeteria plans
because of unanticipated changes in expenses
due to COVID-19. The claims period for taxpayers
to apply any unused amounts remaining in an
FSA or dependent care assistance program for
expenses incurred has been extended through
Dec. 31, 2020. Previously provided temporary relief
for high-deductible health plans may be applied
retroactively to Jan. 1, 2020. The limit on unused
health FSA carryover amounts increased from $500
to $550, as adjusted for inflation.

SAFE HARBOR FOR TELEHEALTH
SERVICES
For services provided on or after Jan. 1, 2020, and
for plan years beginning on or before Dec. 31,
2021, high-deductible healthcare plans (HDHPs)
with HSAs provide coverage for telehealth or
other remote care services without a deductible
or having to satisfy the plan's minimum deductible.
In addition, an otherwise eligible individual with
coverage under an HDHP may still contribute to
an HSA, despite receiving coverage for telehealth
and other remote care services before satisfying
the HDHP deductible, or despite receiving coverage
for these services outside the HDHP.
This measure encourages the use of remote
health services, helps ease the burden on
in-person facilities, and ultimately limits the
spread of the virus.

COVID-19 TESTING
The Families First Coronavirus Response Act
requires health insurers and group health plans
to cover COVID-19 testing and related provider
visits, and thus eliminates patient cost-sharing
obligations under employer-sponsored group health
plans. This measure encourages more people to get
tested for COVID-19.

BACKGROUND INFORMATION
HSA: An HSA is a tax-exempt trust or custodial
account set up with a qualified HSA trustee to pay
or reimburse certain medical expenses incurred.
Your clients may deduct contributions made to
an HSA (with certain limits) even if they don't
itemize deductions on Form 1040, Schedule A,
and contributions made by an employer (including
contributions made through a cafeteria plan) may
be excluded from income. Earnings on the assets
accumulate in the account tax free, and distributions may be tax free if applied to qualified medical
expenses. The HSA will stay with the taxpayer even
if they change employers or leave the workforce.

FSAs:
Health FSAs
allow employees to use tax-free
dollars to pay for medical
expenses not covered by their
health plans, such as premiums, deductibles,
copayments, eyeglasses, and hearing aids. An
employee needs to decide how much to contribute
to the health FSA through payroll deductions before
the plan year begins. The health FSA limit is $2,750
for 2020. The employee must spend any unspent
amounts by the end of the plan year or forfeit the
money. However, employers may allow employees
more time through a carryover option (carryover
up to $500 of unused amounts to the following
plan year) or a grace period option (employee has
until 2-1/2 months after end of plan year to incur
expenses).
Archer MSA: An Archer MSA is a tax-exempt
trust or custodial account set up with a financial
institution in which a taxpayer saves money that
will be used for medical expenses incurred in
the future. Plan holders are allowed to deduct
contributions to these plans (with certain limits)
even if they don't itemize deductions on Schedule
A. Interest or earnings will grow tax free in the
account, and distributions may be tax free if used
for qualified medical expenses. The account will
stay with the taxpayer even if they change employers or leave the workforce.
HRA: An HRA must be funded solely by an
employer, and contributions cannot be paid
through a voluntary salary reduction agreement.
Employees are reimbursed tax free for qualified
medical expenses up to a maximum dollar amount,
and there are no reporting requirements on the
individual's tax return. Any unused amounts in the
HRA can be carried forward for reimbursements
in later years.
Resource: IRS Publication 969, Health Savings
Accounts and Other Tax-Favored Health Plans. ■
Mike D'Avolio, CPA, JD, is tax law specialist and staff program manager at Intuit's
ProConnect Group. He is a customer and employee instructor, customer and government
liaison, and a public relations representative.

AUGUST 2020 ■

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