Industry urges IRS to revise guidance, making supplements reimbursable from HSAs and FSAs

April 20, 2020

The industry is calling on the Internal Revenue Service (IRS) to include dietary supplements as a “medical expense” eligible for Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA). According to a letter sent to IRS Commissioner Charles P. Rettig from a coalition of industry trade organizations that include the American Herbal Products Association (Silver Springs, MD), the Consumer Healthcare Products Association (Washington, D.C.), the Council for Responsible Nutrition (Washington, D.C.), and the United Natural Products Alliance (Salt Lake City, UT), doing so does not require Congressional action. Instead, it would only require IRS to revise the IRS Publication 502 to permit nutritional and dietary supplements to be considered “medical expenses” under the Internal Revenue Code (IRC).

The industry is calling on the Internal Revenue Service (IRS) to include dietary supplements as a “medical expense” eligible for Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA). According to a letter sent to IRS Commissioner Charles P. Rettig from a coalition of industry trade organizations that include the American Herbal Products Association (Silver Springs, MD), the Consumer Healthcare Products Association (Washington, D.C.), the Council for Responsible Nutrition (Washington, D.C.), and the United Natural Products Alliance (Salt Lake City, UT), doing so does not require Congressional action. Instead, it would only require IRS to revise the IRS Publication 502 to permit nutritional and dietary supplements to be considered “medical expenses” under the Internal Revenue Code (IRC).

Specifically, the trade organizations urge IRS to revise Publication 502 for the tax years 2019 and beyond to remove the section on Nutritional Supplements from the section of the booklet titled “What Expenses Aren’t Includible?” and to add a paragraph to the section titled “What Medical Expenses Are Includible?” to read:

“You can include in medical expenses the cost of dietary supplements, provided that such products are labeled with Supplement Facts labels that are compliant with federal regulations for these products.”

Making this change would allow Americans to be reimbursed from their HSAs and FSAs for the out-of-pocket expenses they pay for dietary supplements, encouraging healthy lifestyles and recognizing the valuable role supplements play in supporting health, particularly during the COVID-19 pandemic. Additionally, by making dietary supplements a medical expense, it also frees up scarce household resources for other critical needs.

“Section 262 of the Internal Revenue Code states that, except as otherwise expressly provided, no deduction shall be allowed for expenses from these tax-advantaged accounts unless it is for the medical care of the taxpayer, the taxpayer's spouse, or the taxpayer’s dependents. 26 USC §223(d)(2),” explains the letter. “The IRS’s regulations further provide that qualifying medical care expenses can include ‘expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness.’ 26 CFR §1.213-1 (e)(1)(i). Neither the statute nor the regulation excludes dietary supplements. However, IRS Publication 502, as revised for tax year 2000 and forward, specifically excluded ‘nutritional supplements’ from the definition of ‘medical expenses.’”

The Natural Products Association (NPA; Washington, D.C.) has also called for inclusion of dietary supplements under medical expenses in HSAs and FSAs as Congress and the IRS consider relaxing rules and expanding coverage during the pandemic. “Giving people more ways to save money to support their health is more important than ever,” said Daniel Fabricant, PhD, president and CEO of NPA, in a press release. “This simple change promotes the proactive, preventive approach that we need to support if we wish to improve Americans’ health and healthcare costs.”

While the unprecedented COVID-19 pandemic presents an important opportunity to make this change for the benefit of consumers, industry has long been lobbying for the inclusion of dietary supplements under HSAs and FSAs. In November 2019, six members of Congress that included Rep. Glenn Grothman, (R-WI), Rep. Barry Loudermilk (R-GA), Rep. Brian Mast (R-FL), Rep. Bill Posey (R-FL), Rep. Adrian Smith (R-NE), Rep. Christopher Smith (R-NJ) and Rep Mark Walker (R-NC), sent a letter to the IRS Commissioner requesting the very same change that is currently being asked for.