Section 213(d) of the Internal Revenue Code is a critical component of the U.S. tax system. Specifically, Section 213(d) governs the taxability of certain reimbursements arising from qualifying medical expenses arising from qualifying group health plans and other account-based arrangements. Understanding Section 213(d)’s intents and application will aid employers in offering comprehensive benefits, optimizing plan participation, and supporting their workforce more effectively.

Employer Action Items

• Establish a Clear Understanding: Familiarize yourself with the list of allowable expenses under Section 213(d). Ensure that your employees also understand what constitutes medical expenses and what does not.
• Offer Suitable Health Plans: If you are offering HSAs, HRAs, FSAs, or Archer MSAs, ensure these plans cover Section 213(d) expenses. You will need to work closely with your benefits administrator for verification.
• Communicate Regularly: Clear communication about their benefits encourages employees to make better use of their benefits. Explain not just the benefits, but also the caveats and stipulations on qualifying medical expenses according to Section 213(d).
• Monitor Changes: Regulatory updates might affect the type or number of expenses that Section 213(d) covers. As an employer, you should stay updated about these changes and inform your employees accordingly.
• Train and Educate: Provide training sessions for your employees to ensure they can correctly identify qualified, allowable medical expenses. Continuous education and training are not just for onboarding employees but should be an integral part of employee communications throughout the year.
• Maintain Documents: Keep track of all necessary documents related to allowable medical expenses as defined under Section 213(d). These documents will be crucial for employee reimbursements and in case of any audits.
• Seek Legal Advice: Consult a tax professional or legal advisor knowledgeable about Section 213(d) to guarantee that your health plan complies with IRS regulations. It is better to be proactive and ensure the company and employees are well-protected.

Summary

Section 213(d) defines qualifying medical expenses in a tax-qualified arrangement. Generally, these are costs incurred for the diagnosis, cure, mitigation, treatment, or prevention of diseases, including costs of treatments affecting any bodily system. As a plan sponsor, it is important to understand that these costs can be deducted from an individual’s gross income and that they receive tax-preferred treatment when reimbursed through a qualifying Health Savings Account (“HSA”), Health Reimbursement Arrangement (“HRA”), Flexible Spending Arrangement (“FSA”), or an Archer Medical Savings Account (“MSA”).

Understanding Section 213(d) and its implications for health plans and medical expense reimbursements is critical for providing optimal employee benefits.

More Information

Remember, legal and tax implications arising in relation to employee benefit administration regularly undergo modification, so continuous monitoring and adjustment is oftentimes required. Doing so will enable plan sponsors to provide counsel confidently and accurately for employees participating in these types of employee benefit plans and programs. For more information from the IRS related to understanding and applying Section 213(d) limitations and related requirements, please visit the IRS website here.

For questions regarding this Legislative Update or any other related compliance issues, please contact your Burnham Benefits Consultant or Burnham Benefits at 949‐833‐2983 or inquiries@burnhambenefits.com.

This Legislative Update was prepared by the Baldwin Regulatory Compliance Collaborative (the “BRCC”), a partnership of compliance professionals offering client support and compliance solutions for the benefit the partnerships in the Baldwin Risk Partners organization, which includes Burnham Benefits Insurance Services (“Burnham Benefits”).

Burnham Benefits and the BRCC do not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with applicable federal and state law requirements, and is based on our interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.