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December 19, 2002

REVISED IRS GUIDE TO DEDUCTIBLE AND REIMBURSABLE
MEDICAL EXPENSES

The Internal Revenue Service (IRS) has issued a revised version of Publication 502 for the 2002 tax year. IRS Publication 502 lists expenses that are for "medical care" under IRC Section 213(d). These expenses are deductible on an individual's tax return, but are not necessarily reimbursable from a health plan or flexible spending arrangement (FSA). To see the revised version of Publication 502, in PDF format, click here.

There are several changes in Publication 502. The following are among the most notable:

• The revised publication discusses when expenses for weight-loss programs to treat obesity are (and are not) expenses for medical care. This guidance is based on Revenue Ruling 2002-19. (For more information about this revenue ruling, see The Segal Company's April 16, 2002, Capital Checkup.
• The revised publication also includes a definition for health reimbursement arrangements (HRAs).

New Guidance

In addition, Publication 502 has an extensive new section describing the Health Insurance Tax Credit enacted in the Trade Act of 2002. This credit allows individuals who are eligible for benefits under the Trade Adjustment Assistance (TAA) program, or people who are receiving PBGC benefits and are between the ages of 55 and 64, to receive a 65 percent tax credit for certain health insurance expenses, effective in December 2002.

While the revised Publication 502 is helpful in deciding whether an expense is reimbursable from a health plan or FSA, caution should be exercised because only expenses payable under the language of the plan document may actually be reimbursed. As on all matters involving interpretation of laws and regulations, sponsors of health plans should consult with their legal counsel.

Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.

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