2006-041-RES-Health Reimbursement

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CAPITAL EXPENSES Medical expenses incurred by employees for special equipment installed in the home or for improvements are reimbursable under a health care spending account (subject to the discussion below) if their main purpose is medical care. Under Internal Revenue Code Section 213, the cost of permanent improvements that increase the value of the property may be partly deducted as a medical expense. The cost of the improvement is reduced by the increase in the value of the property; the difference is a deductible medical expense. If the value of the property is not increased by the improvement, the entire cost is deductible as a medical expense. Improvements made to accommodate a residence to a person's disability do not usually increase the value of the residence, and the full cost is usually reimbursable. These improvements include, but are not limited to: · constructing entrance or exit ramps; · widening doorways at entrances or exits; . widening or otherwise modifying hallways and interior doorways; . installing railing, support bars or other modifications to bathrooms; . lowering or making other modifications to kitchen cabinets and equipment; . moving or otherwise modifying electrical outlets and fixtures; . installing porch lifts and other forms of lifts (but generally not elevators); . modifying fire alarms, smoke detectors and other warning systems; · modifying stairways; · adding handrails or grab bars; · modifying hardware on doors; . modifying areas in front entrance and exit doorways; and · re-grading the ground to provide access to the residence. Only reasonable costs to accommodate a personal residence to a disabled condition are considered medical care. . Additional costs for personal motives, such as for architectural or aesthetic reasons, are not reimbursable. Operation And Maintenance If a capital expense qualifies as a reimbursable medical expense, then expenses related to operation and maintenance also qualify as medical expenses, as long as the medical reason for the capital expense still exists. This is so even if none or part of the original capital expense qualified as a medical care expense. Improvements to Property Rented by a Person with Disabilities Amounts paid by a person with disabilities to buy and install special plumbing fixtures, mainly for medical reasons, in a rented house are reimbursable medical expenses. For example, Don has arthritis and a heart condition. He cannot climb stairs or get into a bathtub. On his doctor's advice, he installs a bathroom with a shower stall on the first floor of his two-story rented house. Don's landlord did not pay any of the cost of buying and installing the special plumbing and did not lower the rent. Don can deduct the entire amount he paid. It is important that you budget carefully when taking advantage of the Medical Expense Reimbursement Account. The same tax law that permits this benefit also specifies that any money that is left in your account at the end of the plan year must be forfeited. Your account balance cannot be transferred to your Child Care Reimbursement Account or carried forward to the next year. All employee and dependent coverage will terminate on the earliest of the end of the month your employment terminates or the end of the month in which you cease to be an active, full-time Employee. The exception to this rule is that when such termination of coverage would otherwise fall on the last day of the last month of the plan year, in which case the coverage will not terminate until the fifteenth day of the third month following the end of the plan year. If your employment terminates or you lose coverage before the end of the plan year, you have 90 days from the end of the plan year to claim medical expenses incurred prior to your date of termination. If your coverage is still effective on the last day of the plan year, you have 90 days from the end of the grace period to claim medical expenses incurred during the plan year or the grace period. Even if you should over budget and have some money remaining unused in your account, you may still benefit due to the amount of your tax savings. Money from your unreimbursed health care spending account will pay your medical expenses with before tax dollars. Any expenses paid from this account may not be claimed again as a deduction on your income tax return. Page 23