Are expenses paid with a HCRA tax deductible?
If you use a HCRA to pay for eligible health care expenses, you cannot deduct those same expenses on your federal income tax return. However, your entire FSA payroll deductions is pre-tax. If you itemize your medical expenses on your tax return, you can only deduct the amount of your total medical expenses that exceed 10% of your Adjusted Gross Income (AGI). By contrast, when you use a HCRA to pay for medical and health care expenses, you receive a tax deduction without having to meet the 10% AGI minimum. The money you allot to an FSA is also exempt from FICA (Social Security and Medicare) taxes, a deduction that is not available on your federal income tax return. If your eligible medical expenses exceed the 10% threshold by a significant amount, you might want to consult with a tax professional to determine which option is best for you.