Hand Sanitizer and Masks are Tax-Deductible (and HSA eligible)
Last week the IRS announced that amounts paid for Personal Protective Equipment (PPE), which includes masks, hand sanitizer, and sanitizing wipes are tax-deductible medical expenses if the primary purpose for purchasing them was to help prevent the spread of COVID-19. They also made this ruling retroactive to January 1, 2020.
Unfortunately, in order to qualify for the deduction for medical expenses you need to itemize your deductions and only the portion of your medical expenses above 7.5% of your AGI is tax-deductible so very few people will actually be able to claim those deductions.
Don’t fret though because there’s a twist to this. In making those expenses eligible for a deduction on your itemized return, these items also became eligible for tax-free reimbursements (or payment) from an HSA, FSA, HRA, or MSA. Given what some of us have paid for these items over the past year, this can be very meaningful, but before I get to that, let’s recap the basics of an HSA.
In order to qualify for an HSA, you need to participate in a high-deductible health plan and that plan must be HSA-qualified. If you have a family plan, you can contribute $7,200 this year on a pre-tax basis ($3,600 for single). If you’re 55 or older, you can contribute an additional $1,000.
Once the money is inside the HSA it grows tax-free and can be withdrawn tax-free to pay/reimburse you for qualified medical expenses. Given the low-interest-rate environment, we are in, you need to invest the money in your HSA to take full advantage of the tax-free earnings. If your HSA doesn’t allow you to invest it in the market, you can transfer it to an HSA that does without any taxes or penalties due (just like rolling over an IRA).
Now, back to the good stuff. One of the best kept secrets related to HSAs is that, unlike other pre-tax medical accounts, you do not need to use all the funds by the end of the year. In fact, as long as you document those expenses that are eligible for reimbursement, you can take tax-free withdrawals for them in future years; you don’t have to withdraw the money in the year it was incurred. Think about how much more you’d have if you left that money in your HSA and let it grow and compound, tax-free, for the next 20-30 years!
Used properly, the HSA is one of the best tax shelters the IRS allows us to use.
If you want to know more ways to make your money work for you, feel free to reach out and we’ll help you Traverse this landscape.
