Ask The Taxgirl: Parents Paying For Medical Expenses & FSAs

Taxpayer asks:

Hi Taxgirl,

My parents are willing to pay for me to have gastric bypass and whatever that entails (Dr appointments, nutritionist and so forth). They then want to write the payments off to their taxes. Is that legal? I am no longer a dependent of theirs. Also I have an FSA account if I pay for the bypass and they pay me back can they write that off? Or do they have to make the actual payments?

Thanks,

taxgirl says:

You have a few issues here.

First, gastric bypass “and whatever that entails” may be – but is not necessarily – deductible as a health expense. When it comes to weight loss, you cannot deduct the cost of surgeries or programs to simply look or feel better; the procedure must be a treatment for a specific disease diagnosed by a physician. Weight loss surgery, since it has a cosmetic component, can be controversial at best so make sure that you have great documentation to prove that it was medically necessary and ordered by a doctor. Similarly, follow-up care is only deductible if similarly prescribed.

That said, even if it is ordered by a doctor, expenses are only deductible for the taxpayer, the taxpayer’s spouse and the taxpayer’s dependents. If you no longer qualify as a dependent, the expense would not be deductible if paid by your parents.

That bit can be confusing because, for federal gift tax purposes, expenses paid on behalf of another person but made directly to a medical institution are excluded from calculations when figuring taxable gifts. That doesn’t affect your parent’s federal income tax calculations, however.

With respect to your FSA (flexible spending account), the purpose of the plan is to allow you to pay for qualified medical expenses (still must meet the criteria) out of pretax dollars that you’ve set aside. If your parents pay you back to make up for the expenses, while that might be a lovely gesture, that would not qualify as a medical expense deduction on their end, even if you were still a dependent (the fact that you’re not makes it moot).

So, to recap: under these facts, your parents can’t get a federal income tax break for paying for your surgery – either directly or through you. They can, however, pay your medical care providers directly and have the expenses excluded from their taxable gifts.