The prevalence of chronic diseases such as obesity, hypertension, and diabetes among adults underscores the importance of exercise and physical activity in managing these conditions. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are valuable tools for managing healthcare expenses, yet many exercise professionals and their clients may not be aware of their potential for covering physical activity expenses under certain conditions. Many employers and employees are not yet aware of these benefits. It is essential to educate them about the potential tax advantages and the steps required to utilize these benefits effectively. This month’s CREP blog provides insights from important IRS guidance on how to use tax-advantaged saving accounts and what pitfalls to avoid.
Health Savings Accounts (HSAs) are tax-advantaged accounts available to individuals enrolled in high-deductible health plans (HDHPs). Contributions are tax-deductible, the account grows tax-free, and withdrawals for qualified medical expenses are tax-free (1).
Flexible Spending Accounts (FSAs) are employer-established plans that allow employees to set aside pre-tax dollars for certain out-of-pocket healthcare costs. Unlike HSAs, FSAs typically have a "use-it-or-lose-it" rule, where funds must be used within the plan year or forfeited (2).
For an expense to qualify for reimbursement under an HSA or FSA, it must be directly related to the treatment of a diagnosed medical condition. IRS representatives emphasize that proper documentation and a legitimate medical diagnosis are crucial. For instance, gym memberships or exercise programs can be reimbursed if prescribed to treat specific medical conditions such as obesity, hypertension, or diabetes (3, 4, 5, 8).
Utilizing HSA/FSA for Physical Activity
Proper documentation is critically important. Exercise professionals should remind clients that the letter of medical necessity from a licensed healthcare provider must include: the patient's name, a specific diagnosis, the recommended treatment plan, the duration of the treatment, and the physician’s signature and date (5, 8).
Here’s how exercise professionals can guide their clients on utilizing their HSA/FSA for physical activity expenses:
Confusing general wellness with medical treatment can be a significant pitfall. Only expenses directly related to the treatment of a diagnosed medical condition are reimbursable, and general wellness activities do not qualify. Another critical issue is the misrepresentation of expenses. Exercise professionals should be cautious of companies that misrepresent wellness and general health expenses as medical care. The IRS warns against claims based solely on self-reported health information without proper medical diagnosis and documentation. Additionally, handling annual memberships requires attention. If clients pay for an annual gym membership, they can only claim the portion of the expense corresponding to the period during which the medical condition was diagnosed and the treatment was prescribed (5, 6, 7, 8).
Understanding how HSAs and FSAs can be used for exercise and physical activity expenses can greatly benefit clients with specific medical conditions. Exercise professionals should stay informed about IRS guidelines and help clients navigate the requirements to maximize their health benefits. Proper documentation and a clear understanding of what qualifies as a medical expense are essential to utilizing these benefits effectively and avoiding potential pitfalls. Exercise professionals can enhance the accessibility and affordability of necessary physical activity.
