Alerts and Updates

IRS Proposes to Expand Deductibility of Medical Expenses

August 12, 2020

The proposed regulations will become effective when printed as final regulations in the Federal Register.

Presently, Internal Revenue Code Sec. 213(d) and the regulations thereunder define deductible medical care expenses as amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease or for the purpose of repairing any structure or function of the body.

Recently, the IRS released proposed regulations allowing amounts paid for a direct primary care arrangement, otherwise known as concierge medical services, to be deemed deductible medical care expenses subject to existing adjusted gross income limitations. The regulations, once finalized, are also expected to allow Medicare A, B, C and D as well as CHIP and TriCare premiums to be deemed deductible medical insurance premiums. Additionally, any such changes at the individual level would also extend to employer fringe benefit plans. That is, tax free fringe benefits provided by the employer may now also include direct care arrangements under the proposed regulations as long as other nondiscriminatory rules were followed.

A “direct primary care arrangement” is a contract between an individual and one or more primary care physicians under which the physician or physicians agree to provide medical care, as defined in the Internal Revenue Code and regulations, for a fixed annual or periodic fee without billing a third insurance party. A payment for a direct primary care arrangement could be for medical care or for medical insurance. For example, if an arrangement provides solely for an anticipated course of specified treatments of an identified condition or solely for an annual physical exam, the payments are incurred for medical care. As long as a direct primary care or concierge arrangement meets the definition in the proposed regulations, the amounts paid will qualify as a medical care expense, regardless of the specific nature of the arrangement for medical care provided or medical insurance.

A “primary care physician” is defined as an individual who is a physician, as described in section 1861(r)(1) of the Social Security Act, who has a primary specialty designation of family, internal, geriatric or pediatric medicine.

The IRS understands other types of medical arrangements between health practitioners and individuals exist that do not fall within the specific definition of concierge services or direct primary care and is assessing deductibility. For example, an agreement between a dentist and a patient to provide dental care or an agreement between a physician and a patient to provide specialty care would not be a direct primary care arrangement but nonetheless may be the provision of medical care and fall within the guidelines of the regulations and be deductible.

The IRS is also considering whether to expand the definition of a direct primary care arrangement to include a contract between an individual and a nurse practitioner, clinical nurse specialist or physician assistant who provides primary care services under a contract. Also under consideration is the definition of primary care services provided by a nonphysician practitioner, such as a chiropractor.

The proposed regulations will become effective when printed as final regulations in the Federal Register. So, stay tuned.

TAG’s Perspective

During the pandemic, as increasing numbers of people move to remote operations of all types and seek to gain efficiencies in all aspects of their lives, concierge medicine/direct primary care arrangements are becoming increasing popular. With the proposed regulation, those subscribing to such services may also soon enjoy added tax benefits when engaging in these agreements.

For Further Information

If you would like more information about this topic or your own unique situation, please contact Michael A. Gillen, Steven M. Packer, any of the practitioners in the Tax Accounting Group or the practitioner with whom you are regularly in contact. For information about other pertinent tax topics, please visit our publications page.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.