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The Celiac Tax Deduction: What's New?

Celiac.com 03/05/2012 - When I first wrote about the tax treatments available to diagnosed Celiacs for the additional costs they incur by following a Gluten-Free diet fifteen years ago, the law was pretty well established and there were no significant changes in the works. The advent of Section 125 plans shortly thereafter, also known as Flexible Spending Arrangements (FSA) added a new twist to the quest for tax deductions. With all the hoopla that has taken place in the last year, both with health care reform and tax legislation, what has changed?

Photo: CC - 401KOverview of the Medical Expense Deduction
Before I talk about what has changed, it is important to review the basics of the medical expense deduction and how it relates to the additional costs of following a Gluten-Free diet. Section 213 of the Internal Revenue Code (IRC) provides an itemized deduction for qualified medical expenses incurred. Under present law, medical expenses are deductible to the extent that they exceed 7.5% of Adjusted Gross Income (AGI). AGI is the number shown on the last line of the first page of form 1040.

So, for an individual who has an AGI of $100,000, the “floor” they have to exceed is $7,500 before any of their medical expenses begin to be deductible. If one is in relatively good health and if their employer pays for their health insurance, it is unlikely that one would have enough qualified medical expenses to take the deduction.

The Gluten-Free Component
Now, let’s bring the cost of Gluten-Free food into the equation. Based on a variety of Revenue Rulings and court cases, sufficient precedent has been established for one who has been diagnosed with Celiac Disease (or any other medical condition requiring adherence to a Gluten-Free diet) to claim a medical deduction for the additional costs of following a Gluten-Free diet. I will cite the applicable law at the end of this article.

So, how does one calculate the cost of following the Gluten-Free diet and, equally important, how does one document those costs? Calculating the cost of following the diet is a matter of tracking the costs of purchasing food items that are necessary to the diet and subtracting the costs of comparable non-Gluten-Free versions of the same food. So, for example, if a loaf of Gluten-Free bread costs you $6.00 and a comparable loaf of “regular” bread costs $2.00, the deductible cost of the Gluten-Free bread would be $4.00.

What about those items for which there is no counterpart in the non-Gluten-Free community? One example of this would be Xantham Gum. In that event, the total cost of the product would be deductible.

It’s easy to discuss this process on an item by item basis, but how does one accumulate this data and perform the calculations for a year? First, it is important to collect and retain detailed receipts of every purchase you wish to deduct. You would then need to create a spreadsheet on which to track this data for the year. While I recommend the use of an electronic spreadsheet, pencil and paper will also serve the purpose. If cost is what stands in your way of using a product like Microsoft Excel, check out OpenOffice.org. It is a free Microsoft compatible office suite that should serve your purposes quite well. I would strongly encourage you to collect this data and update your spreadsheet after each shopping trip.

Where do Flexible Spending Arrangements Come In?
As mentioned earlier, depending on the amount of your AGI, you may still not have accumulated enough in deductible medical expenses to be able to take the deduction. However, under current law, if you participate in a Section 125 plan with an FSA and, if your FSA plan allows it, you may be able to reimburse yourself for the additional costs of following a Gluten-Free diet. If you can do that, you have effectively achieved an “above the line” deduction for following the Gluten-Free diet. Similarly, since Health Savings Accounts (HSAs) follow the same rules as FSAs, that may also provide you with an opportunity to get your medical deductions, including the additional costs of observing a Gluten-free diet above the line. For those who are unfamiliar with HSAs, they are only available to those who use them in conjunction with a high-deductible health insurance plan. See your tax advisor for more information or e-mail me with your questions.

Getting back to the discussion on FSAs, however, before you rejoice, there are a couple of caveats to be aware of. First, your 125 plan has to permit this reimbursement. You will need to check with your plan administrator and, perhaps, read the plan document yourself. Be prepared to educate the plan administrator on this issue. Also, after you read the effect that Health Care Reform is going to have on health care expenses in FSAs, you may determine that it isn’t worth the effort. More on that later.

So, What’s Changed?
Two significant changes that will affect one’s ability to deduct the costs of following a Gluten-Free diet are slated to occur in the name of Health Care Reform.

First, the floor for deducting medical expenses is scheduled to increase from 7.5% of AGI to 10% beginning in 2013. If you or your spouse will be age 65 or over at that time, the increase to 10% will take place in 2017. Going back to our example from before, if one has an AGI of $100,000, instead of medical expenses having to exceed a floor of $7,500 to be deductible, they would have to exceed $10,000. This increase would obviously make one think twice about accumulating all the data described earlier!

Another change slated to take place in 2013 would affect the strategy of paying for the costs of following a Gluten-Free diet from an FSA. Beginning in 2013, the maximum amount that could be contributed to a health FSA will be limited to $2,500. There is currently no limit! This cap will reduce the value of paying the costs of following a Gluten-Free diet because doing so will limit the amount available to pay for other health related expenses. Since HSAs are less restrictive, there may be an opportunity here to improve your deduction options.

So, What’s the Bottom Line?
Until the end of 2012, as the law currently stands, it is business as usual in terms of how (if at all) you have been deducting your costs of following a Gluten-Free diet. You must have a diagnosis that requires you to follow a Gluten-Free diet and your costs are potentially deductible as an itemized deduction to the extent they exceed 7.5% of your AGI. If you participate in an FSA, you may be able to pay those expenses through your plan. Check with your plan administrator.

Beginning in 2013, however, the landscape changes. You will have a higher hurdle to overcome to take the itemized deduction and you will be subject to new restrictions in the amounts that can be paid through an FSA. That’s all true as of this writing. As you must certainly be aware, Health Care is a very volatile issue in Washington right now and there are many who believe that it will look very different than it does right now, by the time 2013 rolls around. Congress isn’t done tinkering yet – stay tuned.

Cites to the Law

For those who want to learn more, here are some of the more relevant cites to the tax law:

  • §213 of the Internal Revenue Code
  • Rev Rul 55-261
  • Rev Rul 76-80
  • Cohen v. Commissioner, 38 TC 387
  • Randolph v. Commissioner, 67 TC 481
  • Fleming, TC MEMO 1980 583
  • Van Kelb, TC MEMO 1978 366
  • §9013(a)-(b) of the Patient Protection and Affordable Care Act, P.L. 111-148, 3/23/2010
  • §125(i)(1) of the Internal Revenue Code as amended by 2010 Health Care Act §10902(a)

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26 Responses:

 
Katherine
Rating: ratingfullratingfullratingemptyratingemptyratingempty Unrated
said this on
12 Mar 2012 6:06:41 AM PST
Wow, fail. I eat mostly rice. Why should my tax dollars go to supporting those who have made the personal choice to eat expensive gluten substitutes?

 
Kristen
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said this on
12 Mar 2012 5:45:54 PM PST
It is very difficult to get all your nutrients from rice alone. Quinoa, teff and other expensive grains provide many more nutrients than rice. By eating a healthier diet (although more expensive) I believe I'm contributing to health care by staying well.

 
Helen
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said this on
12 Mar 2012 6:06:45 PM PST
I am a gluten intolerant Enrolled Agent (tax preparer). This article does an excellent job of explaining how to claim any medical expenses related to a medically prescribed gluten free diet. Although an individual may be perfectly happy eating only rice, it sometimes is not a palatable option for children and teenagers who see all their friends eating sandwiches at school and want to have a sandwich as well. Or someone who has to bring food to work and wants to not be noticed for eating "differently". Gluten is often present in every day items and condiments - not just bread and cookies.

 
Tyler
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said this on
19 Aug 2012 7:29:39 PM PST
For most people it's not a choice to go gluten-free. It affects people's lives in ways you probably don't know, so you should do some research and understand the reason why people have to eat gluten-free before you say anything! Many people have severe health issues when they eat gluten and why should they have to suffer and pay more money for the same product you can get for a third of the cost. It's not my choice to go gluten-free, this is a great tax deduction for someone like me who can barely afford the normal price of food these days. Now I have to pay $7 for a loaf of bread compared to $2, why shouldn't I get a tax deduction for this?

 
Dana

said this on
25 Feb 2013 6:01:35 PM PST
Someone else's tax deduction does not mean that you are paying more to support them. I guess I'm confused by your comment.

 
Ashley

said this on
22 Nov 2013 8:54:03 PM PST
"You must have a diagnosis that requires you to follow a Gluten-Free diet..."

 
Astra
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said this on
14 Dec 2013 6:15:31 PM PST
Liked the article but because I am gluten sensitive not celiac I guess I can not have tax deduction for living strict gluten free life because the only test for gluten sensitivity is consequences of eating gluten, ouch.

 
Laurie

said this on
17 Mar 2015 2:13:58 PM PST
This doesn't pertain to people who choose to eat gluten free. It's for those who medically must eat gluten free.

 
Gloria Brown
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said this on
12 Mar 2012 1:42:47 PM PST
Inasmuch as the FDA permits 20ppm of gluten to be in products labeled "Gluten-free" (enough to make these products completely inedible for at least me as a Celiac) and the counterpart to eating zero-gluten fresh produce is zero-gluten fresh produce; one has to wonder why bother with government at all!

 
Merl
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said this on
13 Mar 2012 3:26:40 PM PST
Thank you for the update. Sounds like a challenge. I'm 8 years diagnosed now and it hits the wallet! I get frustrated when I see bread on sale for 85 cents and I'm paying $6.00 I’ll save my receipts document comparison non-gluten free products cost by taken pictures with cell phone. Then enter them in the spreadsheet. Thank you.

 
Barb
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said this on
13 Mar 2012 5:54:58 PM PST
I'd appreciate this tax deduction but my gf expenses don't exceed the allowed amount. And eating mostly rice is not a well balanced diet. What about those people who have children with Celiac disease. Do you, Katherine, think that they should tell their kids they can only eat rice?

 
Brooke Follett
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said this on
14 Mar 2012 11:31:42 AM PST
I think the percentage should be lowered. Gluten free food is pricey. However, I try to stick to the foods that are gluten free naturally. It's nice to be able to have the option to have those substitutes.

 
Mike
Rating: ratingfullratingfullratingfullratingemptyratingempty Unrated
said this on
11 Apr 2012 8:48:37 AM PST
Yes, threshold is way too high. Again, punishment by the government for making 'too much money'.

 
MZoe
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said this on
12 May 2012 1:15:50 PM PST
I'm SOOO confused! The article states that the cost difference for following a GF diet is deductible, but NONE of the "relevant cites to the tax law" that are listed seem to support this statement, as far as I can find.

§213 of the Internal Revenue Code lists "Special foods and beverages" under NON-deductible medical expenses (obtained here-www (dot) usu (dot) edu (slash) hr (slash) files (slash) uploads (slash) 213(d)eligiblemedicalexpenses (dot) pdf )

Rev Rul 55-261, found at www (dot) irs.gov (slash) pub (slash) irs-wd (slash) 0941003 (dot) pdf , states, "when that special food or beverage is taken as a substitute for food or beverage normally consumed by a person to satisfy normal nutritional requirements, the expense is personal and is not deductible as a medical expense." (page 2, paragraph 3)

The document I found when I googled "Randolph v. Commissioner, 67 TC 481" ( www (dot) ustaxcourt (dot) gov (slash) InOpHistoric (slash) MASSA (dot) TCM (dot) WPD (dot) pdf ) states that the court was "not convinced that his special diet, although followed for medical reasons, differed from the diet of an ordinarily health-conscious individual." (page 6, paragraph 2)

A few of the other citations seemed to have little (if anything) to do with the subject of tax deductions for foods related to medically necessary diets.

The single most useful document I was able to find wasn't even listed in the recommended cites!

There is a response letter from the Office of the Chief Council of the IRS: www (dot) irs (dot) gov (slash) pub (slash) irs-wd (slash) 11-0035(dot) pdf
which states, "A taxpayer who can establish the medical purpose of the diet may deduct the excess cost if the taxpayer can prove what the taxpayer spent for the special diet and what the taxpayer would spend for food to satisfy normal nutritional needs."

Why does the author reference rulings that are counter to his point, and fail to reference anything that supports it???

 
Howard Kass
Rating: ratingfullratingfullratingfullratingfullratingfull Unrated
said this on
24 Oct 2012 2:38:19 PM PST
Unfortunately, I do not have control over this website or the articles they post. While this article was posted here in March 2012, it first appeared on my website a year earlier, in March 2011.

If you go to my website, which you can find by googling Zinner & Co. and search the site for either the word, celiac, or the word, gluten, you will find several articles I have written on this topic.

Specifically, there is a blog post that links to the very letter you described in your comments.

Thanks for your comments.

Howard Kass, CPA
Tax Partner
Zinner & Co. LLP

 
Nanci
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said this on
04 Jul 2012 10:42:14 AM PST
Are books about gluten-free cooking tax deductible? What about books about celiac disease or gluten intolerance? And thank you for this article -- I had no idea the food was deductible.

 
Donna
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said this on
20 Jul 2012 4:18:30 PM PST
Thank you for the update/education to the looming changes for 2013.

 
Linda
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said this on
03 Nov 2012 8:34:28 AM PST
This article is pretty good, but it seems to leave out of some other things that I wonder if are deductible, such as traveling to the doctor's appointment, as I live in a small town and had to drive 1 hour to get to the doctor's office for the initial appointment and then back again for testing. Plus, I had to take time off of work for these and other appointments. Are these deductible? Also, we have at my work a cafeteria, but I am not able to eat there as there is too much cross contamination to risk it. So I either bring my lunch ~which in turn have to buy more gluten-free foods~ or go out, which also is more expensive as there are only a few restaurants serving gluten-free and they charge more for it. I was just diagnosed this past March and I am having one heck of a time finding foods in a small town. Not to mention, my husband gets laid off in the winter so our income declines A LOT, and makes purchasing gluten-free foods even harder! The government needs to start living like the rest of us ~not making what they do~ and see what it is like to struggle with their rules, laws and well everything else. Oh and what about medicine? I also have osteopenia and I need to take medication for that along with extra vitamins and supplements. Are these deductible?

 
sara
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said this on
30 May 2013 12:43:57 AM PST
Travel for medical purposes is deductible, just keep a diary of the appointments and the mileage traveled-check your odometer before leaving and upon returning. Excel is great for tracking this.

 
Nicole
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said this on
05 Feb 2013 5:40:17 PM PST
My 3 year old was diagnosed with celiac disease 2 months ago. To those that think this is a choice, trust that it is not. Think about this: My child will never be able to go on a playdate unless I pack her snacks, she can never participate in her friends or family members birthday parties, holidays she eats different food, she can never go to camp, she can never buy lunch, she can rarely grab a snack at a vending machine or eat out without planning and spending more, she can never travel freely as she will always have to worry about what she will be able to eat. She will forever have this disease and if she doesn't follow a gluten-free diet, she risks significantly increasing her chances of intestinal cancer as well as numerous other intestinal problems. This is not a choice. How dare you insinuate that it is.

 
Kris
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said this on
12 Mar 2013 5:34:06 PM PST
Dear Nicole,

I want to offer you and your daughter some words of hope and encouragement. I was diagnosed with celiac disease over 20 years ago and I thought I would have to miss out on all the things you listed above. I shed many tears thinking that I would never be able to eat cake with my daughters on their birthday. I am happy to say that my sister learned to make a wonderful gluten-free cake that we all shared on my daughters' first birthday! We have all been able to go to our church camp for a week every summer and the head cook makes wonderful gluten-free, dairy-free meals for us. At my daughter's school, we can keep gluten-free cookies or frozen cupcakes so that they always have a treat when other kids are celebrating their birthdays. I've learned how to pack GF/DF food when I travel. I just want you to know there's hope! I have found ways to adjust to eating gluten-free/dairy-free for the last 20 years! It does take time and effort, but it is worth it!

 
sue
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said this on
27 Apr 2013 10:40:12 PM PST
Nicole, you are right: being having celiac is difficult and frustrating. Understand this does not mean you daughter will get cancer, nor that she must be an outcast. I take pride in knowing that I can participate in almost any social activity and most people don't even know I have it. I plan ahead for myself to have food and maintain a positive attitude. The best thing you can do is stop treating your daughter's disease and start supporting her healthy life style. You are fortunate to have a daughter who is so healthy and active you can worry about cake.

 
Christina
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said this on
18 Jul 2013 5:51:48 PM PST
Nichole,
My daughter was 5 when she was diagnosed with celiac disease and I too thought that she wouldn't be able to do all the same things that you think your child can't do, BUT THEY CAN! So many things are now Gluten Free out there today than there were even 4 years ago when my daughter was diagnosed. She is 9 now, going to friends parties(most parents will try to accommodate for your child or you can bring a gluten free version of what they are having), eating school lunches( By law the school has to provide your child with foods to match what the others are having due to the child's medical condition. You might need to fight with the school at first or the school might already have children with the same problem. Unfortunately my daughter was the first in her school to have Type 1 Diabetes and have the celiac disease so I had to fight but not for long. Get a legal advocate if need be. They help.),there are special Camps for children with diabetes and celiac disease (they cater to all children with both diseases since diabetes and celiac disease go hand in hand), for holidays as long as your family is understanding they will find meats, potatoes, and all of the other family favorites that you eat in a Gluten free version or just find out that what you already eat is Gluten free as I did. It might take a while but YOU WILL FIND A WAY TO WORK THROUGH IT AND SEE THAT IT GETS EASY FOR YOU AND EVENTUALLY HER TO JUST TAKE WHAT YOU WERE DEALT IN LIFE AND LIVE. My daughter does every day and she gets a lot of the same things in a Gluten free version that her 2 little brothers get in the regular form and is a very happy child. Have faith, things will get better.

 
Claudine
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said this on
27 Feb 2013 5:21:12 AM PST
Nicole, I can sympathize with you since my daughter has been hospitalized several times and finally diagnosed with celiac disease a year and a half ago, along with my husband who has significant ongoing damage. It absolutely stinks what your daughter has to go through just to feel well. My daughter is now 7 and is amazing with dealing with this. She is now dairy-free which is difficult, but she knows what it is like to be sick and that we will make the most of it. She attends parties, I keep a stash of frozen cupcakes in the freezer and she carries one in her cupcake case. She also brings her own gluten-free pizza or chicken nuggets to friends' houses. She also occasionally buys a gluten-free lunch at school (speak to the head of services). These options all take time and effort, but as time goes on, there are going to be more options out there and more autoimmune diseases coming into play thanks to our tainted GMO food supply. Best of luck!

 
Harvey L. Brinson
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said this on
17 Jun 2013 3:17:16 PM PST
The article is informative. However, what I would like to see is an explanation as to why gluten-free foods are so expensive.

 
Cyndi

said this on
17 Jul 2013 11:46:55 AM PST
You and me both!
I was diagnosed in 1989 and would have to order my gluten-free food mail order. By the time I got it, it would frequently be moldy because of the lack of preservatives. Because of the "fad" gluten-free dieters, manufacturers seem to be trying to cash in on this by having such high prices. The different flours to bake with are even more expensive than whole wheat. I have had 3 bowel obstructions related to my celiac disease and it is no fun. I now eat fresh fruits and vegetables and just eat very little processed foods. Even that is very expensive. I wish you all the very best of luck in dealing with this disease, it does get easier to handle by taking the time to prep fresh foods for cooking, but so worth it to feel healthy.




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