IRS Guidance Issued: Tax Treatment of Certain Contraception and Other Preventative Care

At A Glance

• Condoms will now be an eligible expense under a health Flexible Spending Account (FSA), Health Reimbursement Arrangement (HRA), or Health Savings Account (HSA).
• The Internal Revenue Service (IRS) has expanded the list of preventative care services, procedures, and expenses that can be provided pre-deductible under a High-Deductible Health Plan (HDHP).

Tax Treatment of Condoms as an Eligible Medical Expense

Notice 2024-71 provides a safe harbor that makes condom purchases tax-deductible under Section 213 of the Internal Revenue Code. Because these amounts are treated as medical expenses under Section 213(d), they are eligible to be paid or reimbursed under an FSA, HSA, and HRA.

New Preventative Care Benefits Provided by an HDHP

Notice 2024-75 expands the list of permitted preventive care benefits an HDHP provides, which includes over-the-counter oral contraceptives, emergency contraceptives, and male condoms. An HDHP provides preventive care benefits without a deductible or with a deductible below the required annual minimum.  All preventive care benefits must meet the IRS guidelines.

The notice also clarifies that preventive care includes:

• All types of breast cancer screening for individuals who have not been diagnosed with breast cancer.
• Continuous glucose monitors for individuals diagnosed with diabetes.
• Certain insulin products that are prescribed to treat an individual diagnosed with diabetes or for the purpose of preventing further diabetic complications. 

The new guidance indicates that this preventative care shouldn’t impact a participant’s HSA eligibility.

Next Steps

Review both notices in the Internal Revenue Bulletin, 2024-44, when it is published on October 28, 2024.

Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.