Tax Deductable Expense?????

I am currently exploring the possibility of self pay weight loss surgery in Mexico.  I am currently looking at ways of making it more affordable.  I have been unable to determine if having a medically necessary surgery that is completed outside of the United States can be paid for with my Flexible Spending Account.   Has anyone used their FLEX funds to pay for surgery in Mexico?  Has anyone deducted the expenses on their taxes?  I do not want to fund my FLEX account if this cannot be used for the surgery.  Please Help.

You'll want to check with your specific plan administrator, but this suggests you can use FSA:

The services can be reimbursed, but not the lodging or transportation expenses. When you submit your claim, you must include English translations for any foreign receipts that are not in English. Also, you must convert the cost to the applicable U.S. dollar amount, using the currency exchange rate as of the date that the service was provided.

This page suggests that you can deduct the medical expenses on your taxes just like if the surgery took place in the US. I'd suggest asking your accountant or somebody else knowledgeable, though.

You can deduct the cost of surgery done in another country as long as it is a legal operation and not “unnecessary cosmetic surgery”.  This is the same requirement that surgery done in the US has to meet.  IRS Publication 502 will give you more information and an extensive list of covered medical expenses.

http://www.irs.gov/pub/irs-pdf/p502.pdf

Thank you for your response.  I have read the IRS publication 502 and cannot find anything that would exclude it.   I asked my plan administer by email and this is the response I received.  I still have not received the publication they are referring to.  Has anyone actually used their FLEX funds to pay for the surgery.

Response from my FLEX administrator

The card and funds cannot be used outside the United States because the FSA is a federal program controlled by the IRS.  You also cannot submit a claim for reimbursement. 

I will let her know that you are inquiring again about this.  I will have her send me the specific publication in the IRS where it states that the card cannot be used outside the United States. 

It's possible, but will depend on the specific FSA policy and guidelines established by your employer or the company they use to manage the FSA plan. This information should be given to you by request. I actually used FSA to attend an OH event, as registration and travel for a medically specific conference were eligible for reimbursement by the plan I had. As for taxes, in order to be deductible medical expenses have to be over and above a certain percentage of your total gross income. 

SO it can get complicated but with taxes what isn't. Anyway I will do my best to answer your questions as I understand them.

1) Can I use my FSA to pay for foreign country medically necessary surgery? It is not specifically prohibited or excluded by the IRS in publication 502 or any other publication that I am aware of. General rule of thumb is that if an item is not specifically prohibited then it is allowable. 

"You can include in medical expenses amounts you pay for legal operations that are not for unnecessary cosmetic surgery." Your surgery is not unlawful, therefore is most likely includable. Your specific plan administrator of your FSA likely requires translation of appropriate documentation. Medications that are prescribed and used during the course of your surgery while in Mexico would also likely be includable. Buying medication in another country and transporting it into the US is generally not includable UNLESS it was transported legally.

2) Are surgery costs tax deductible? Well that too depends. Did you opt to use the FSA? If so then you can take the cost of your surgery and other medical costs (out of pocket costs) and deduct the amount paid via the FSA - didn’t go with an FSA or mixed your “open season”? then you don't deduct that part from the total. If the medical expense amount is greater than 10% (assuming you are under the age 65 - if not than it is 7.5%) of your AGI for the entire year then you can deduct that amount as part of your itemized deductions. Make spreadsheets/notes/tracking of all of this. Keep receipts. This is KEY and will save you in an audit. 

Example:

All medical fees paid/incurred* during calendar year: $20,000

FSA Contribution: $2,550

AGI: $50,000

Medical less FSA = $17,450

10% of AGI: $5,000

Medical less 10% AGI: $12,450 = this can be included in your itemized deductions

By Paid/Incurred I mean, you may have charged a portion of your surgery to a credit card, or taken out a loan for the surgery. If you charge your medical expenses they are deductible in the year you received care - not when you eventually paid for them. (You cannot deduct interest - well unless you take out a home equity loan and well lets not even go there unless you really want me to).

For allowable medical expenses read IRS Topic 502: http://www.irs.gov/taxtopics/tc502.html which discusses allowable items. You may be surprised at what counts! Prescriptions, Mileage (in country), Pregnancy tests (who knew!), false teeth, etc :)

Additional things to consider:

You can contribute up to $2,550 into an FSA via an employer sponsored plan. Your spouse/partner can also contribute this much if their employer offers a plan, which could give you a MAX FSA amount of $5,100 for your surgery.  Your money needs to be used in the calendar year that you contribute (UNLESS your plan has opted for the 3 month grace period - then $500 can be carried into the next year)

Publication 502 (2014) does specifically prohibit the cost of traveling for your surgery if you are only having surgery elsewhere for "merely for a change in environment, improvement of morale, or general improvement of health, even if the trip is made on the advice of a doctor". I interpret this to mean if you are going to Mexico for surgery because it's cheaper/not covered by US Insurance then lodging isn't covered.

It isn't guaranteed that the IRS will increase the contribution amount in 2016, so to be safe I would use the $2,550/$5,100. I am assuming you are planning for 2016 - since unless you have a qualifying life event / qualifying status change you can't start contributing now. 

Phew. That was a lot of info. I need to get back to studying now.

Please note that any advice given by me is based on my experiences and is in no way a promise of what may actually occur. I am not a licensed CPA (yet). I am not an EA. Tax advice given by anyone is just that - advice. 

Feel free to ask me any questions you may have, either in this forum or via PM. 

Best wishes - Keila

Thank you all so much. My companies fiscal year actually runs July to July.  So I need to decide my amount the amount of my contributions by  May.   I guess I need to check out Drs now.

I wanted to thank everyone *****sponded.  This morning me FLEX administrator informed me they were incorrect in their previous two responses saying the funds could not be used out of country.  I think this is a lesson for everyone to keep pushing.   It is easy for people to deny and say no without looking up information.