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At-home COVID test costs are eligible for reimbursement, IRS says. Here’s what to know

The costs can be paid or reimbursed through flexible spending arrangements and health savings accounts.
COVID at-home testing
Mendy McNulty prepares test swabs for shipping as her son watches after the family did a twice-weekly coronavirus test in their Tennessee home. The IRS said last week that the costs of at-home COVID-19 testing can be paid for or reimbursed through FSAs, HSA, HRAs and Archer MSAs. (Mark Humphrey | AP Photo)

People who have used, or will use, an at-home COVID-19 test may be able to have the cost covered or reimbursed.

The Internal Revenue Service last week reminded taxpayers that the cost of at-home coronavirus testing is an “eligible medical expense” and therefore can be paid for or reimbursed under health flexible spending arrangements, health savings accounts, health reimbursement arrangements and Archer medical savings accounts.

“That is because the cost to diagnose COVID-19 is an eligible medical expense for tax purposes,” the IRS said.

The IRS also said that the costs of personal protective equipment bought to avoid the spread of COVID-19 — such as face masks, hand sanitizer and sanitizing wipes — are also eligible to be paid for or reimbursed. In March, the IRS told taxpayers that face masks, hand sanitizer and other PPE bought during the pandemic were tax deductible.

How the payments or reimbursements work

Payments or reimbursements for eligible medical expenses, including at-home tests, work differently depending on the type of account or arrangement.

  • Flexible spending arrangement (FSA): An FSA is a “special account” employees put money into to pay for some “out-of-pocket health care costs.” The money isn’t taxed, and employers can contribute to the account. “You use your FSA by submitting a claim to the FSA (through your employer) with proof of the medical expense and a statement that it has not been covered by your plan,” HealthCare.gov said. “You will then receive reimbursement for your costs.”
  • Health Savings Accounts (HSA): An HSA is a type of savings account that lets taxpayers put “aside money on a pre-tax basis to pay for qualified medical expenses,” including deductibles, copayments, coinsurance and some other expenses. People can also contribute to an HSA if they have a High Deductible Health Plan. Funds in an HSA can be used at any time to pay for eligible medical expenses.
  • Health reimbursement arrangements (HRA): HRAs are “employer-funded group health plans” that are used to reimburse employees tax-free for eligible medical expenses up to a certain amount each year. HRAs are “not accounts,” Investopedia said, and employees can’t withdraw funds from them in advance to pay for out-of-pocket medical expenses. Instead, they “incur the expense first, then have it reimbursed.”
  • Archer medical savings accounts (Archer MSA): These are a type of health savings account that allow users to save for qualified medical expenses, according to Investopedia. Congress in 2007 declined to authorize new Archer MSAs but allowed existing ones to continue.

A push for at-home COVID-19 testing

President Joe Biden last week announced a sweeping strategy to combat the COVID-19 pandemic.

His strategy includes a developing a plan that will require all employers with 100 or more employees “ensure their workforce is fully vaccinated or require any workers who remain unvaccinated to produce a negative test result on at least a weekly basis before coming to work.”

“It will take time for the newly vaccinated to get protection from the virus,” the White House said. “As we continue to combat COVID-19, testing is a key tool to identify infected individuals and prevent spread to others.”

In an effort to “improve access to rapid tests,” the White House said Walmart, Amazon and Kroger will offer the at-home tests at cost for the next three months.

“This means that Americans will be able to buy these tests at their local retailers or online for up to 35 percent less starting by the end of this week,” the White House said last week.

Biden’s administration has also “taken action” to require Medicaid to cover at-home tests for free and to ensure tools states use to “manage at-home testing do not establish arbitrary barriers for people seeking care.”

More than 40.9 million people in the U.S. have tested positive for COVID-19 and more than 660,000 have died since the start of the pandemic, according to data from Johns Hopkins University.