As tax season approaches many Americans are currently on the lookout for tax deductions that can lower their tax obligations. The IRS has since this year provided guidance that may enable some individuals to cover costs relating to particular contraceptives. Here is what you should know to help you assess if you are eligible to benefit from this new development.
Are condoms and contraceptives tax-deductible?
According to recent IRS guidance, both condoms and certain types of over-the-counter contraceptives are now eligible for tax deductions under specific conditions. These deductions primarily apply to purchases intended for medical purposes, specifically for the prevention of sexually transmitted diseases (STDs) or as part of a health plan.
- Qualifying medical purpose: The IRS has ruled that condoms qualify as a deductible medical expense because they are commonly used to prevent STDs, which aligns with the IRS’s medical expense requirements.
- General health expenses not deductible: The IRS makes it clear that expenses purely for general health or lifestyle improvements (like gym memberships) do not qualify as medical deductions. Condoms and contraceptives, however, are viewed as preventative health tools when used to prevent illness, which can make them deductible under specific rules.
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How to deduct contraceptive purchases as medical expenses
The IRS has specified two main routes to deduct the cost of condoms or contraceptives: itemizing medical expenses or using health-related savings accounts.
- Itemized deduction: If you choose to itemize your medical expenses, they must exceed 7.5% of your adjusted gross income (AGI) to qualify. Additionally, the sum of all your itemized deductions must be greater than the standard deduction amount, which for 2024 is $14,600. While condoms and contraceptives are usually low-cost, they can contribute to your total medical expense deduction if you have other qualifying expenses.
- Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs): Alternatively, you can purchase condoms or contraceptives using funds from an FSA, HSA, or Health Reimbursement Arrangement (HRA). These accounts allow you to set aside pre-tax dollars for medical expenses, making this route easier for many people to access.
How can I use a Health Savings Account for contraceptives?
An HSA can be an excellent way to pay for contraceptives if you have a high-deductible health plan. When you use pre-tax money in an HSA, you’re effectively reducing your taxable income, meaning that you’ll pay less tax overall.
To get started with an HSA for these purchases:
- Confirm that your health plan qualifies as a high-deductible plan, which is required to open an HSA.
- Set aside funds in your HSA each pay period to cover expected medical costs, including eligible contraceptives.
- Use your HSA debit card or request a reimbursement when you purchase condoms or other qualified contraceptives.
Why did the IRS change its stance on contraceptive deductions?
This year, the IRS updated its guidelines to provide clearer support for items used to prevent disease, like condoms, following consistent advocacy for clear guidance. While the specific reason behind the IRS’s timing is unknown, the recent notices have been welcomed by many looking to manage health costs more effectively.
Key takeaways on contraceptive tax deductions
- Eligibility: Condoms and certain contraceptives are deductible if they are purchased for disease prevention.
- Options for deduction: You can itemize the expense if your medical expenses exceed 7.5% of AGI, or use an FSA, HSA, or HRA for tax-free purchases.
- Impact on taxpayers: For those who rely on contraceptives as a medical expense, this deduction can help to offset other health-related costs, especially when using pre-tax savings accounts.
This new tax rule could mean a bit more financial flexibility for people who regularly purchase contraceptives. If you are considering these deductions, be sure to review your options with a tax professional.
