Looking for ways to zero out your Flex Spending Account at year-end? The IRS may have a way to help. In a Private Letter Ruling, the Service recently decided to allow the deductibility of at least portion of DNA test kits from providers like 23andMe and MyHeritage. These companies provide DNA testing and reports of both a customer’s health and ancestry. The health reports can provide users with a “deeper understanding of their health risks” which can facilitate discussions of such with their medical providers for more testing, diagnosis, or treatment. The health portions of these tests currently cannot be purchased without the ancestry portion.
Relying on prior Treasury Regulations and Revenue Rulings, the Service explained that the health portions of such tests (and not the ancestry portions) may qualify for the healthcare cost deduction under Section 213 of the Internal Revenue Code. While Private Letter Rulings only apply to the taxpayer requesting them and cannot be cited as precedent, it indicates a willingness by the IRS not to challenge implementation by other taxpayers.
The deduction only kicks in once one’s medical expenses exceed 10% of Adjusted Gross Income for 2019 (up from 7.5% for the 2017 and 2018 tax years), so those with Flex Spending Accounts or Health Savings Accounts may benefit more readily than those trying to claim the deduction on their 1040s. Taxpayers must use a reasonable method to allocate the health and ancestry costs. As of July 29, 2019, such an allocation could be as follows:
If extra costs apply, such as shipping charges or other fees, they should be apportioned based on the deductible vs. non-deductible services above. The full Ruling can be found here.
Andrew Ralls is a business and estate-planning attorney, licensed in both Missouri and Kansas. He can be reached at (913) 744-6589.