As the Internal Revenue Service (IRS) continues to refine its guidelines for tax credits and deductions, based on updates and changes caused by the COVID-19 pandemic, new guidelines are being put in place for individuals and businesses. The most recent ruling involves a new ruling for COVID-19 PPE deduction, recognizing that many people had to purchase supplies to protect themselves from the virus throughout 2020.

COVID-19 Personal Protective Equipment (PPE)

The COVID-19 virus outbreak was declared a pandemic in March 2020. Shortly after, health officials began advising individuals to stay home whenever possible. When they needed to be out in public, such as for trips to the grocery store, everyone was urged, and eventually required, to wear protective masks. Health officials also stressed the frequent use of hand sanitizer and sanitizing wipes to prevent infection.

Now the IRS has recognized that these essential COVID-19 PPE qualify as medical expenses, as they are used for the primary purpose of preventing the spread of the virus. For the tax year 2020, anyone who has paid for COVID-19 PPE for their own use for use by their spouse or other dependents can deduct those expenses, as long as the cost was not compensated for by insurance and the taxpayer qualifies for a deduction for medical expenses.

Calculating Deductions

To be able to deduct any medical expenses, the total must exceed 7.5% of the taxpayer’s adjusted gross income. Once the taxpayer is eligible, the deductible amount then is the part of the medical and dental expenses that is more than 7.5% of the adjusted gross income. Allowable medical care expenses are those that primarily alleviate or prevent a physical or mental disability or illness. Expenses toward items that are beneficial to general health, including vitamins or a vacation, are not included in deductible medical expenses.

Medical expenses include the premiums paid for insurance that covers the expenses of medical care, and the amounts paid for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.

FSAs and HSAs

The new ruling for COVID-19 PPE deductions can also affect individuals with flexible spending accounts (FSAs), medical savings accounts (MSAs), health reimbursement arrangements (HRAs), and health savings accounts (HSAs). The IRS has ruled that these amounts are eligible to be paid or reimbursed under health FSA arrangements, HRAs, Archer MSAs, or HSAs. If any amount is paid or reimbursed under any of these or any other similar health plans, it is not deductible.

The IRS also ruled that group health plans such as FSAs and HRAs may be amended to provide for reimbursement of COVID-19 PPE expenses incurred for any period beginning on or after January 1, 2020. The amendment will not be treated as causing a failure of any reimbursement to be excludable from income or as causing a cafeteria plan to fail to meet applicable requirements.

Health Insurance Premium Deductions

While health insurance premiums are eligible deductions if the taxpayer meets the 7.5% threshold, self-employed individuals may be eligible for a different type of deduction for those premiums. For the self-employed who are able to show a net profit for 2020, they may be eligible for the self-employed health insurance deduction.

This deduction is an adjustment to income, rather than an itemized deduction, for premiums paid on a health insurance policy covering medical care, including a qualified long-term care insurance policy for the individual, their spouse, and their dependents. The policy can also cover a child who is under the age of 27 at the end of 2020 even if the child wasn’t a dependent.

CLEAR VIEW BUSINESS SOLUTIONS CAN HELP

COVID-19 has changed many aspects of your personal and business life, including the way you file taxes. Regulations and guidelines continue to evolve as a result of the many pandemic-related challenges. The experts at Clear View know what you need to do and when you need to do it. We can help ensure that you are maximizing your available credits and deductions and minimizing your tax payment.

Our professional team works with you at tax time and throughout the year to help you be better prepared to make sound financial decisions and to plan for your success. Learn more about how we can help you and your business by contacting Clear View Business Solutions to speak to our team about our services. Give us a call at (520) 544-0177.