Tax Considerations on Abortion-Related Travel Benefits

Allen Smith, J.D. By Allen Smith, J.D. July 8, 2022
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An IRS office

​Employers that are amending their health benefit plans to facilitate access to abortion will need to consider the tax treatment of abortion-related travel benefits, following the U.S. Supreme Court's ruling on state abortion restrictions.

In particular, employers will need to determine the extent to which reimbursement of travel expenses to access abortions are payments for "medical care" as defined in Section 213 of the Internal Revenue Code, said Jenna Wallace, an attorney with Covington in New York City, and Christen Sewell, an attorney with Covington in Los Angeles, in a joint e-mail.

The Internal Revenue Code provides that amounts received through accident or health insurance are not included in gross income if such amounts would be deductible. Section 213(d) of the Code provides that amounts paid "for transportation primarily for and essential to medical care" are reimbursable on a tax-free basis.

The IRS has held that an abortion is medical care, and therefore can be provided on a tax-free basis if the abortion is not illegal under state law, said Rosina Barker, an attorney with Morgan Lewis in Washington, D.C.

Additional guidance would be welcome as to what situations would be considered medical care, Wallace and Sewell said. "For example, would travel to a pharmacy to pick up a prescription for an abortion pill be medical care?"

The Internal Revenue Code provides that amounts for lodging are reimbursable on a tax-free basis only up to $50 per night per individual. Lodging for a person traveling with the individual receiving medical care—for example, a parent, spouse or other companion—would be excludable, bringing the total up to $100 per night.

Any reimbursement for lodging also must satisfy two additional requirements to be excludable: 1) The medical care must be provided by a physician in a licensed hospital or in a medical care facility that is related to, or the equivalent of, a licensed hospital; and 2) there must not be a significant element of personal pleasure, recreation or vacation in the travel away from home.

Excludable travel expenses would include bus, train or plane fares. If traveling by car, covered expenses include out-of-pocket expenses like the cost of gas and oil, parking fees and tolls, but not depreciation, insurance, general repair or maintenance expenses, Wallace and Sewell explained.

Meals and child care expenses are not excludable.

"Employers will need to work with counsel and any third-party administrators to determine what sort of receipts will be required to demonstrate eligibility for the reimbursement on a tax-free basis," Wallace and Sewell noted.

Companies also should consider how they and third parties administrating a travel reimbursement benefit or health care reimbursement account will protect the privacy of employees who may use a travel reimbursement benefit to access an abortion and how businesses might respond in the event of a subpoena, they added. "Employers should keep in mind that any taxable benefits will require information sharing with an employer's payroll department and payroll provider," they said.

Employers must report the aggregate cost of employer-sponsored health coverage on Form W-2. Nonetheless Wallace and Sewell said, "We don't expect that employers who add or expand a travel benefit under their existing health plan will need to adjust their reporting practices significantly."

FSAs, HRAs and HSAs

Subject to the terms of the plan, employees generally will be able to use contributions made to their health care flexible spending account (FSA), health reimbursement arrangement (HRA) and health savings account (HSA) to cover abortion-related travel that qualifies as medical care under the Internal Revenue Code.

"Employers should be aware of any applicable state tax requirements," Wallace and Sewell said. Employer-provided medical benefits that are exempt from federal income and employment tax are generally exempt from state income and employment tax, but there are some special rules in certain states. "As an example, California and New Jersey treat contributions to HSAs as taxable for state income tax purposes," Wallace and Sewell said.

To be eligible to contribute to an HSA, an employee must be covered by a high-deductible health plan and may not receive any benefit from the high-deductible health plan before the deductible is satisfied, they noted.

"There are exceptions for preventive care and benefits that are not significant benefits in the nature of medical care or treatment," they said. "Additional guidance would be welcome as to whether travel reimbursement benefits could be reimbursed before a participant meets the plan's deductible."

For example, Wallace and Sewell asked, is reimbursement for travel to access preventive care like birth control—which includes patient education and counseling, sterilization procedures and emergency contraception like Plan B—preventive care that could be covered before the deductible?

Changing Legal Landscape

"At least for now, where abortions are legal, payment or reimbursement by a plan should not be taxable," said Amy Sheridan, an attorney with Sullivan & Worcester in Boston. "But where abortions are illegal, it may be that plan coverage results in the benefit being taxed."

In the future, Congress might amend the Internal Revenue Code "to explicitly carve out all abortion or abortion-related expenses from medical care such that expenses paid or reimbursed would always be taxable," she said.

Some states may amend their tax laws to require employers to impute income for abortion-related expenses, including any reimbursed travel expenses received by their residents. "In addition to raising privacy-related issues, that would create an administrative burden for group health plans, which would need to somehow track the residency of an employee or dependent receiving the benefit in order to ensure the proper tax treatment of the abortion benefit provided by the plan," Sheridan said.

There also are constitutional questions about state laws that regulate conduct that occurs in other states, noted Jonathan Zimmerman, an attorney with Morgan Lewis in Washington, D.C. "Some legal questions may not be resolved for some time, but many employers have chosen to offer abortion-related benefits in any case," he said.

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