Weekly Health Compliance Briefing

October 28, 2026

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IRS Guidance Issued on Tax-Free Reimbursements of Wearable Devices
The Internal Revenue Service (IRS) added a frequently asked question (FAQ) to its existing guidance (see FAQ #15) that addresses when the cost of a wearable device (such as a watch or ring) may be paid or reimbursed on a tax-free basis by a health flexible spending arrangement (FSA), health savings account (HSA), or health reimbursement arrangement (HRA). Per this guidance, the taxability determination will be based on a facts-and-circumstances test regarding whether the individual purchases and uses the device primarily to assist in the diagnosis, cure, mitigation, treatment, or prevention of a specific disease.

As background, the IRS originally published a set of FAQs in March 2023 addressing whether certain costs related to nutrition, wellness, and general health are “qualifying medical expenses” that are eligible for tax-free reimbursement by a health FSA, HSA, or HRA under Section 213 of the Internal Revenue Code. For this purpose, medical expenses mean the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body. The medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness. To that end, expenses that are merely beneficial to general health do not qualify.

Now, FAQ #15 addresses when the cost of a wearable device that tracks bodily functions or other health-related information is a qualifying medical expense. More specifically, a device with both medical and non-medical uses (such as tracking general wellness, fitness, or sleep information) is not a qualifying medical expense merely because it tracks information relating to general health, or because it tracks bodily functions like blood pressure or blood glucose levels that are or can be affected by specific diseases. However, the cost of such a device is a medical expense if the individual purchases and uses the device primarily to assist in the diagnosis, cure, mitigation, treatment, or prevention of a specific disease. Relevant facts and circumstances may include: (i) a recommendation from a medical practitioner; (ii) the individual’s symptoms, diagnosis, abnormal test results, or risk factors; (iii) the relationship between the information tracked and the disease being evaluated or managed; and (iv) the way the information is reviewed or used. In addition, the cost of accessories, add-ons, or software subscriptions used with the device is a medical expense only if those items are also purchased primarily to serve the relevant medical purpose.

Employers and plan administrators should:

• Review reimbursement requests individually;
• Obtain adequate substantiation; and
• Avoid automatically approving devices with both wellness and medical uses.