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► IRS Explains When Genetic Testing Can Qualify As Medical Care

Genetic testing can sometimes qualify as medical care under §213(d), the Internal Revenue Service (IRS) explained in IRS Private Letter Ruling (PLR) 201933005.

As long as the purpose is for health-related services and reports, the cost of the genetic testing is reimbursable under a health flexible spending account (FSA) or health reimbursement arrangement (HRA), and available for tax-free distributions under a health savings account (HSA), the IRS stated in the PLR. Ancestry-related reports, on the other hand, are not medical care.

The IRS likened genetic testing and related services to a fee paid for storage of medical information in a computer data bank, which the IRS ruled was a valid medical care expense back in 1971.

Recall that one aspect of the medical care definition is diagnosis. A 2007 Revenue Ruling confirmed that diagnosis “encompasses the determination that a disease may or may not be present, and includes testing of changes to the function of the body that are unrelated to disease.” Genotyping is considered health-related and therefore is medical care.

Where a genetic service contains health-related and general information portions, the plan administrator must use a reasonable method to allocate between the two. For example, the price of a DNA collection kit must be allocated between ancestry services and the health services using a percentage (cost of the health services/total cost of ancestry plus health services) to determine what is reimbursable under a health FSA or HRA and available for tax-free HSA distributions.

Private Letter Rulings are based on specific facts and are only binding on the taxpayers requesting the ruling. However, they do provide useful guidance on how the IRS would view similar situations.

[12/2019]

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