Don't Mess With Taxes

As COVID-19 continues to control to at least some degree our lives, federal and state tax officials are offering tax benefits to those who take steps to control and lessen the effects of the persistent pandemic.

Photo: Anna Tarazevich from Pexels

If you still itemize deductions, the Internal Revenue Service today announced that you can count a few more purchases toward your Schedule A medical claims.

Of course, the additions are because of COVID-19.

Specifically, the IRS says in Announcement 2021-7 that the costs of personal protective equipment, aka PPE, purchased for the primary purpose of preventing the spread of coronavirus are deductible medical expenses. This includes face masks, hand sanitizer and sanitizing wipes.

This tax-deduction addition applies to PPE used by the taxpayer, his or her spouse and dependents.

Other medical deduction rules still apply. The now deductible PPE are part of your overall itemized medical costs that must exceed 7.5 percent of your adjusted gross income.

Also, no double dipping. You can only claim PPE costs as tax deductible expenses as long as you (or spouse or dependents) are not compensated or reimbursed for the purchases by insurance.

PPE also OK for various medical accounts: Speaking of reimbursements, the IRS says that the PPE amounts also are eligible to be paid or reimbursed under health flexible spending arrangements (health FSAs), Archer medical savings accounts (Archer MSAs), health reimbursement arrangements (HRAs) or health savings accounts (HSAs).

Today's announcement serves as notice to administrators of group health plans that they can make the necessary amendments to the plans to account for the new PPE tax deductible status.

Previously approved for teachers: The designation of PPE as a tax-deductible medical expense is not surprising.

Educators were given the option to count such out-of-pocket coronavirus-related expenses as part of the $250 they can claim as an above-the-line deduction.

This PPE addition to teachers' allowable expenses list was part of the Consolidated Authorization Act, 2021 that was signed into law on Dec. 27, 2020, and best known for authorizing the second COVID-19 economic impact payment of up to $600.

Virginia tax break, too: Some states also are looking at providing PPE tax breaks.

Virginia is the first to act. That's not too surprising, since Virginia Beach, a popular tourist spot in the Old Dominion State, set the tax table last year by enacting last year a coronavirus meals-tax holiday.

Now statewide, there is a temporary sales tax exemption for businesses that purchase PPE. While the Virginia sales tax break is not for individuals, it does apply to self-employed individuals.

The sales tax exemption, created by House Bill 2185 during the Virginia legislature's recent special session, was signed by the governor on March 11. Unfortunately for businesses that took earlier precautions, the new law does not does not allow for refunds of tax paid on PPE purchases made prior to March 11, 2021.

It will expire on "the first day following the expiration of the last executive order issued by the Governor related to the COVID-19 pandemic and the termination of the COVID-19 Emergency Temporary Standard and any permanent COVID-19 regulations adopted by the Virginia Safety and Health Codes Board."

In enacting the coronavirus-prompted change, lawmakers said the goal is to encourage Virginia businesses to continue or take steps to protect staff and customers and stem the spread of the coronavirus.

Rules, products that qualify: That means, according to the new law, companies must have a COVID-19 safety protocol in place to qualify for this exemption. Guidelines are published in the Virginia Department of Labor and Industry's COVID-19 Emergency Temporary Standard.

Photo: Kelly Sikkema via Unsplash

Businesses that meet the requirements won't have to pay tax for the near future on such items as:

• Face coverings and masks;
• Disinfecting products;
• Gloves;
• Hand sanitizer; and
• Temperature-checking devices.

You can find the full list of qualifying products at the Virginia Department of Taxation's online Guidelines for Retail Sales and Use Tax Exemption for Personal Protective Equipment.

More state tax breaks? Virginia is the first state to offer any COVID-19 sales tax exemption, but Puerto Rico enacted a similar temporary sales tax break last year. The U.S. territory's tax exemption, however, has expired.

A handful of other states, though, are looking into similar legislation, according to the sales tax solutions company Avalara. Michigan has introduced similar legislation similar to Virginia's business tax break.

Others also are considering PPE sales and use tax exemptions with no strings attached. They are, per Avalara's blog, including Connecticut, Minnesota and New Jersey.

You also might find these items of interest:

• The wide range of state and local taxes
• Sales tax jurisdictions across the United States 
• Thumbing through the IRS' medical deduction (or not) list

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