Healthy Resolutions for the New Year? Don't Reimburse a Gym Membership!

Healthy Resolutions for the New Year? Don't Reimburse a Gym Membership!

Getting in shape may be a goal for the new year. But beware the rules around reimbursing your fitness-club membership with Health Savings Account funds.

It's the start of a new year, and you may be joining millions of Americans suddenly crowding fitness clubs and creating lines to use the aerobic equipment. Good for you. And let's hope you maintain the commitment and make changes that improve the quality of your life. But if you were planning on paying your membership dues with pre-tax withdrawals from our Health Savings Account, you may be running a compliance risk.

Qualified Expenses

Only qualified expenses are eligible for pre-tax reimbursement from a Health Savings Account (or a Health FSA). Although you may have been directed to a handy online cheat sheet of qualified expenses, the Internal Revenue Service doesn't offer an official list. Instead, the relevant passage in the federal tax code [Section 213(d)] states:

For purposes of this section—

(1) The term "medical care" means amounts paid—

(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body . . .

That doesn't help much if you're untrained in interpreting government-speak. Here's a simpler explanation:

  1. You generally must have a diagnosis, e.g., the service can't merely promote general health.
  2. The service must be recognized to address that diagnosis.
  3. The service must be legal.

For example, if you have a degenerative disk in your lower back, treatments such as physical therapy, a cortisone injection, and spinal-fusion surgery are all recognized treatments. Thus, you can reimburse any or all of these options.

Gym Memberships

Fitness-club dues fall into a gray area of reimbursement. They generally don't meet this definition. But sometimes they do.

In most cases, people join a gym to promote their general health. They want to tone up, increase endurance and energy, strengthen their core, or improve their performance in a specific activity. Unfortunately, sub-optimal levels of energy or lack of desired strength are not recognized diagnoses within the meaning of Section 213(d). Instead, they represent attempts to improve general quality of life, which don't qualify for tax-free reimbursement.

The federal tax code is clear. If you engage in an activity to improve your general health - whether it's joining a gym, starting a vitamin regimen, or walking every morning or during your lunch break - your expenses associated with that activity are not qualified. On the other hand, if your sedentary or sub-optimal lifestyle leads to a breakdown of a structure or function of the body (think liver disease, obesity, high blood pressure, diabetes), appropriate treatments for your condition are often qualified for tax-free reimbursement from a Health Savings Account or Health FSA (or for the medical deduction to your income).

The But For Test

In some cases, however, a gym membership may be a qualified expense. Consider a patient diagnosed with morbid obesity. He and his physician determine that it's time for him to get in shape. He joins a gym, and his physician drafts a training regimen that includes regular aerobic condition and strength training. The patient reports back to the physician every two months to gauge progress.

Is this patient's gym membership a qualified expense? It depends. If he was already a member of the gym, it probably isn't. He's incurring no additional expense to access a venue to complete his fitness regimen. He's merely receiving more benefit from his dues by following a prescribed treatment plan with built-in accountability.

On the other hand, if he was not a member of any fitness club (he can't merely disenroll from his current gym and sign up at a new one) and he begins this regimen, his dues may represent a qualified expense. In this case, he's incurring a new cost associated with a treatment that's recognized for his diagnosis.

A key factor in determining whether the expense is qualified is the but for test. Under this standard, the issue is whether the patient would have joined the gym but for this diagnosis and treatment regimen. If the treatment plan appears to be the reason for joining the gym and paying dues, the expense is likely to be qualified during the period of treatment.

That caveat is important. One the patient experiences a plateau or reaches an expected medical outcome, future dues are no longer qualified. In other words, if he achieves his weight goal or brings his blood-pressure reading down to a certain level but no lower, he has effectively completed his treatment for the underlying medical condition.

Personal Trainer as a Qualified Expenses

What about hiring a personal trainer at the gym to assist with a prescribed regimen? Again, the tax status of this expense will depend on the reason for hiring the trainer and the activity involved. And as with gym memberships, there is no way to determine in advance the legitimacy of your belief that the expense is qualified if your personal income tax return is audited and your reimbursement is challenged.

Several years ago, I underwent spinal-fusion surgery. At my follow-up appointment, my surgeon recommended strengthening my core to reduce pressure on my lower back, which in turn would complete the restoration of this bodily function. He noted that the standard prescription was physical therapy but that I could gain the same results from working with a personal trainer.

I was already a member of a fitness club, so I contacted an on-staff trainer and hired her at nearly $200 per month for three months of weekly sessions to instruct me in core-strengthening activity. We spent time each Tuesday morning on stretches, free weights, machines, and resistance training. I'm confident that I could reimburse myself for the cost of those sessions through my Health Savings Account (although I'm a saver, so I prefer retaining funds in my account to grow tax-free).

I was a member of the gym prior to working with the trainer, so clearly those expenses aren't eligible. And now that I've received instruction it's up to me to stick to the regimen to maintain my general health. And as we've noted, the costs associated with maintaining general health are not a qualified expense.

The Bottom Line

It may be tempting to reimburse expenses that meet your definition of qualified (a gym membership or vitamins to promote general health, a spa session to improve your mood and mental health, etc.) But recognize that tax auditors don't share this broad definition of a recognized treatment - particularly for a self-diagnosed condition.

If you're conservative, you don't lose any tax benefits. You simply preserve your Health Savings Account balances for expenses that are clearly qualified - like physician visits and lab tests, prescription glasses, restorative dental work, and over-the-counter medicine and supplies. And in retirement, your Medicare premiums (premiums for outpatient Medicare coverage run more than $2,000 in 2022) are qualified expenses as well.

During your life, you'll have far more expenses that are clearly qualified than you will Health Savings Account balances to reimburse them. Avoid compliance problems by limited withdrawals to expenses that are clearly qualified.

To receive this content weekly in your news feed, please "Follow" your Health Savings Academy on LinkedIn.

William G. (Bill) Stuart

Nationally recognized expert on reimbursement account strategy and compliance, particularly Health Savings Accounts and ICHRAs 🔹Writer🔹Author🔹Speaker🔹Educator🔹Strategist

2y

Join the gym. Improve your health. But be careful as you consider whether to reimburse the monthly membership expense from your Health Savings Account.

Like
Reply

To view or add a comment, sign in

Insights from the community

Explore topics