Can the Health FSA reimburse expenses incurred for a special camp for a mentally impaired or physically disabled person?
IRS Publication 502 (2006), “Medical and Dental Expenses”, states in pertinent part:
You can include in medical expenses the cost (tuition, meals, and lodging) of attending a school that furnishes special education to help a child to overcome learning disabilities. A doctor must recommend that the child attend the school. Overcoming the learning disabilities must be a principal reason for attending the school, and any ordinary education received must be incidental to the special education provided. Special education includes:
- Teaching Braille to a visually impaired person,
- Teaching lip reading to a hearing-impaired person, or
- Giving remedial language training to correct a condition caused by a birth defect.
You cannot include in medical expenses the cost of sending a problem child to a school where the course of study and the disciplinary methods have a beneficial effect on the child’s attitude if the availability of medical care in the school is not a principal reason for sending the student there.
IRS Publication 502 is available from the IRS Web Site: http://www.irs.ustreas.gov/formspubs/index.html
This publication addresses itself primarily to those medical expenses deductible by a taxpayer who can itemize medical deductions as a result of these expenses exceeding 7.5% of adjusted gross income. However, this list closely parallels those expenses reimbursable by a Medical/Dental/Vision Care FSA with some exceptions.
Often, one cannot find specific reference in a tax guide to a given expense in question, and the answer must be inferred from information that is given. In this instance, the answer about special schools above gives us comfort to approve a reimbursement request for a special camp for a mentally impaired or physically disabled child, if the main reason for the child’s being there is the resources the camp has for relieving the mental or physical disability.
Please note that we believe the reimbursement is permitted under the Medical/Dental/Vision Care FSA, not the Dependent Care FSA, where overnight camps are flatly ineligible. This ineligibility as a dependent care expense holds even if the camp separately allocates the expenses for day time and overnight activities. The key criteria prohibiting such reimbursement appears to be the IRS view that this expense is not employment-related, and their refusal to entertain any attempts to allocate the overall expense into qualifying and non-qualifying categories.
Please remember that in such areas as these, interpretations are required and these interpretations can differ even among knowledgeable professionals. The exclusion from income of such a reimbursement received through an FSA must ultimately withstand potential scrutiny of an individual tax audit.