On June 24, 2022, the US Supreme Court held in Dobbs v. Jackson Women’s Health Organization that there is no constitutional right to abortion. While Dobbs doesntprohibit abortions, it gives each state the right to determine its own laws related to abortion services. Since the decision, numerous states have implemented laws that severely restrict abortion services through civil and criminal penalties.
In light of Dobbs, employers have been evaluating whether to pay for travel expenses incurred by employees and dependents relating to medical services that are not available within a certain distance from their residence. The provision of these travel benefits raises unique tax issues that must be considered in designing any type of travel expense program.
Whether the employer’s payment or reimbursement of such travel expenses will be considered taxable will depend on whether the travel meets the definition of medical care under the Internal Revenue Code. As defined by the IRC, medical care includes travel that is essential for obtaining legal medical services from a doctor in a licensed hospital or its equivalent. Travel for personal reasons, or for the general well-being of an individual, would not qualify as medical care.
The IRC limits the following travel expenses:
- Transportation to the medical facility. Medical care includes reasonable transportation costs, such as taxi fares, ride shares, buses, trains, airplanes, or rental cars. If someone uses a personal vehicle, expenses may be reimbursed at the standard mileage rate or the actual operating expense.
- Lodging and meals. Medical care includes lodging up to $50 for each night for each person. For example, if the individual seeking treatment needs a companion for travel, up to $100 per night can be included as a medical expense for lodging. Meals are not included.
If employer-reimbursed expenses exceed those parameters, the excess amounts would be taxable to the employee and/or dependent.
Employers should note that travel reimbursements for medical care may be considered part a group health plan by virtue of offering medical care. If the travel benefits are offered on a stand-alone basis, such a program may not satisfy the various requirements for group health plans under the Patient Protection and Affordable Care Act. Therefore, employers may want to provide this benefit through its major medical program if available, a permissible health reimbursement arrangement, or as an excepted benefit such as an employee assistance plan.
Because group health plans must comply with various laws and regulations, some employers may try to design a travel benefits program so the benefits don’t meet the definition of medical care and fall under a different classification. For example, some employers have considered designing a program that provides a travel stipend with minimal substantiation or evidence regarding the actual expenses incurred by the employee or the dependent for the approved travel.
In the case of a non-accountable stipend program or similarly designed program that wouldn’t be considered medical care, the full amount of the travel benefits paid by the employer would be taxable to the recipient. The amount likely would be included on the employee’s W-2. Recipients of these travel benefits may be able to deduct the actual expenses they incurred that meet the definition of medical care on their individual tax returns.
Employers contemplating whether to offer a travel reimbursement program for medical care must consider the tax consequences. Once the design has been implemented, employers must take steps to ensure that any benefits are properly reported and taxed appropriately. Any employer travel program should be reviewed by the employers’ accountants, legal counsel, and other vendors prior to implementation.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Kirsten Vignec is an attorney who chairs the executive compensation and employee benefits group at Tampa, Fla.-based law firm Hill Ward Henderson.
We’d love to hear your smart, original take: Write for Us