IRS provides tax break for 23andMe as a medical expense

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The Internal Revenue Service issued a ruling allowing taxpayers to use a tax-advantaged flexible spending account to pay for the medical portion of an ancestry test from the genetic testing service 23andMe.

The ruling letter was issued in May to the taxpayer, but was announced this week by 23andMe and reported on by The Wall Street Journal. It permits money set aside in an FSA to be used to purchase the health-related information provided through 23andMe’s Health + Ancestry Service. Although the letter was issued to a specific unidentified taxpayer, the ruling would likely also apply to other taxpayers using either a flexible spending account or a health savings account to pay for genetic tests that include a medical testing component.

FSAs and HSAs both allow taxpayers to set aside a certain amount of their pre-tax income each year and use those funds for qualified medical care expenses for both taxpayers and their dependents. In its ruling, the IRS ruled that a portion of 23andMe’s Health + Ancestry Service qualifies as an eligible medical expense.

“Specifically, 23andMe’s testing services and reports that are eligible are those that are subject to FDA jurisdiction including Health Predisposition, Carrier Status, and Wellness reports,” the company reported. “Since 23andMe doesn’t offer these reports separately from the rest of its Health + Ancestry Service, the IRS provided guidance on how the taxpayer who received the ruling should allocate the amount of their purchase that is medical care. Under this ruling, up to $117.74 of the $199 cost for 23andMe’s Health + Ancestry Service (plus shipping and applicable taxes) is an eligible medical expense.”

The IRS letter explained how the expenses should be divided. “On the basis of our analysis of the facts and representations provided, because ancestry services, a non-medical service, must be purchased with health services, we conclude that the price of the DNA collection kit will not be a cost for medical care if only purchased for the ancestry services; however, if the taxpayer also purchases the health services, the price of the DNA collection kit must be allocated between the ancestry services and the health services using a percentage (cost of the health services / cost of ancestry plus health services).”

The company has created an online calculator to help its customers determine the amount that should be eligible. There they can also get a receipt to submit to the administrator of their FSA or HSA along with the original purchase receipt.

Last week, the IRS also expanded the list of preventive care benefits that can be offered by high-deductible health plans to include a range of chronic conditions (see IRS expands HSA benefits for chronic conditions).

For more information from 23andMe about the ruling, click here.

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Tax breaks FSAs HSAs IRS