The IRS recently announced that an FSA, HRA, or HSA may reimburse individuals for expenses they incur to purchase masks, sanitizers, and hand wipes to prevent the spread of COVID-19. Employers should decide soon whether they wish to adopt this optional change to their plans.
IRS Announcement 2021-7 designated PPE as amounts paid for medical care under Section 213(d) of the Internal Revenue Code. To qualify for reimbursement under a medical reimbursement account (such as an FSA, HRA, or HSA), expenses must be incurred on or after January 1, 2020. Employers may amend their FSAs and HRAs to permit reimbursement of PPEs so long as:
- they adopt the amendment by the end of the year following the year in which the amendment became effective (which is a critical concern if the amendment is to have retroactive effect),
- the retroactive amendment is adopted before December 31, 2022, and
- the FSA or HRA operates in accordance with the amendment from its effective date.
Employers may deem the utility of a retroactive amendment to be limited as many individuals may not have kept records of their PPE expenses, such as for hand sanitizers or disposable masks. A prospective amendment may be more valuable, however, as individuals would know about the change and do a better job maintaining receipts. Vendors might also adjust their systems to mark PPE items as FSA-eligible. The IRS announcement does not seem to have an expiration date, so conceivably, expenses for PPE may be reimbursable as expenses for medical care indefinitely so long as their primary purpose is to prevent the spread of COVID‑19. For employers sponsoring cafeteria plans or HRAs, this is yet another item to add to the growing list of plan amendments spurred by a flurry of administrative guidance and legislative changes.
To sum all this up, here are the most important takeaways:
- If you want to cover PPE expenses, you should work with your vendors to determine how to implement the change;
- You should decide whether to make the amendment effective retroactively;
- If you want the amendment to be retroactive, mark the deadline on your calendar and work with legal counsel to ensure timely adoption;
- To help employees take advantage of the new rules, you will need to put together a suitable communications campaign.
- If you have already closed the run-out period for submitting 2020 claims, you will need to reopen that run-out period.