Americans have stocked up on hand sanitizer, cleaning wipes and face masks to combat the spread of COVID-19 — and now the Internal Revenue Service says there’s a potential tax break in store.
All those items and other personal protective equipment used to slow the transmission of COVID-19 count as tax-deductible medical expenses, the IRS recently said.
That’s welcome news, considering hand sanitizer sales were up 624% from 2019 to 2020, according to NielsenIQ, which counted $1.45 billion in 2020 hand sanitizer sales. (NielsenIQ is a newly-established standalone market research business that’s now separate from the company known for things like television ratings.)
The IRS announcement on Friday has implications for income tax returns, but also for certain tax-advantaged accounts, including flexible spending accounts and health savings accounts.
In February, the IRS said teachers could fold their hand sanitizer, mask and personal protective gear costs into the $250 they’re allotted for unreimbursed expenses. A teacher can take the standard deduction and also the take $250 Educator Expense Deduction.
The new announcement applies to people who itemize their deductions. In addition to medical expenses, other itemized deductions include state and local taxes up to $10,000 and mortgage interest.
When it comes to medical expenses, the IRS says a person can only deduct medical costs that go beyond 7.5% of a taxpayer’s adjusted gross income. Other eligible medical expenses include payment for doctor’s visits, in-patient hospital care and medication costs.
The announcement also confirmed that COVID-19-related personal protective equipment is a qualified medical expense for people with health-related flexible spending accounts and people with a health savings account.
Employers may offer an FSA, which lets an employee put pre-tax money into an account and use it on qualified medical expenses that might not be covered by the job’s health plan. 2020 contribution limits were $2,750.
An HSA is another tax-advantaged account. This is paired with high-deductible health plans that have deductibles of at least $1,400 for an individual and $2,800 for a married couple. The HSA contribution limit is $3,550 for individuals and $7,100 for family coverage.