IRS Publication 502 (Medical and Dental Bills (for 2021 Returns)); IRS Publication 503 (Youngster and Dependent Care Bills (for 2021 Returns))
The IRS has launched up to date variations of Publications 502 and 503 for the 2021 tax yr. Publication 502 describes the medical bills which can be deductible by taxpayers on their 2021 federal earnings tax returns. Publication 503 explains the necessities that taxpayers should meet to assert the dependent care tax credit score (DCTC) beneath Code § 21 for baby and dependent care bills.
The 2021 model of Publication 502 is considerably just like its 2020 counterpart. Related greenback quantities (e.g., the usual mileage charge to be used of an car to acquire medical care) have been revised to replicate their 2021 inflation-adjusted values. Clarifications have been added relating to bills to deal with extreme use of alcohol and medicines. Publication 503 has been revised to replicate short-term adjustments to the DCTC and DCAP guidelines beneath the American Rescue Plan Act of 2021 (ARPA) (see our Checkpoint article) and the Consolidated Appropriations Act, 2021 (CAA) (see our Checkpoint article). The 2021 model clarifies that the credit score is just not accessible for dependent care funds made to a stepchild or foster baby who’s beneath 19 or a dependent, and that the work wanted for a dependent care expense to be work-related contains work carried out at residence. Examples and clarifications have additionally been added relating to the principles for short-term absences from work, summer season day camps, tutoring applications, family providers, and the earned earnings restrict for married people.
EBIA Remark: Publication 502 offers useful steerage on what qualifies as a medical expense beneath Code § 213(d), and thus helps determine the bills that could be reimbursed or paid by well being FSAs, HSAs, or HRAs, or coated on a tax-favored foundation beneath different group well being plans (e.g., employer-sponsored medical plans). However Publication 502 ought to be used with warning in reference to these advantages as a result of it addresses the deductibility of medical bills—it doesn’t account for variations within the guidelines for reimbursing bills beneath well being FSAs, HSAs, or HRAs. Likewise, Publication 503 is written primarily to assist taxpayers decide whether or not bills qualify for the DCTC. Whereas related necessities should be met for bills to be reimbursable beneath a DCAP, warning is suggested when consulting the publication for DCAP functions as a result of there are some variations. For extra info, see EBIA’s Cafeteria Plans handbook at Sections XX.D.7 (“Different Steering Concerning What Is Medical Care: Warning Concerning IRS Publication 502”), XX.D.8 (“Distinguishing Deductibility From Reimbursement of Medical Care Bills (and Why It Issues)”), XX.M (“Desk of Widespread Bills, Exhibiting Whether or not They Are for ‘Medical Care’”), XXIII.C (“DCAP Participation vs. Claiming the Dependent Care Tax Credit score”), and XXIV (“What Bills Can Be Reimbursed Below a DCAP?”). See additionally EBIA’s Shopper-Pushed Well being Care handbook at Sections XV.B (“HSA Distributions Are Tax-Free If for Certified Medical Bills”) and XXIV.B (“HRAs Could Reimburse Solely Code § 213(d) Bills”), and EBIA’s Self-Insured Well being Plans handbook at Part VI.B.1 (“Solely Code § 213 Medical Care Receives Favorable Tax Therapy”).
Contributing Editors: EBIA Employees.