Would a $1,000 Tax Deduction get you in the Gym?

America is one of the heaviest societies in the entire world. Two-thirds of Americans are classified as obese or overweight using Body Mass Index as a measurement. These aren’t just ugly statistics; medical conditions linked to obesity caused more than 100,000 deaths in 2017.

On top of all of this, obesity-related medical issues are a very expensive problem, costing society more than $190 million annually in preventable costs.

What’s the Solution?

At this point you’re probably thinking, OK, so what do we do about it? Basically, at a societal level, the core of the issue is what can the government do to motivate or incentivize diet and exercise, if anything? (Please, indulge me here and leave aside the argument over whether or not the government should even get involved in something like this.) Perhaps making gym memberships or fitness equipment tax deductible would help?

Some in Washington are thinking about this as we speak. Congressman Jason Smith (R-MO) is attempting to tackle the issue with the the PHIT Act, giving a deduction for taxes capped at $1,000 for qualified fitness-related expenses.

Current Versus Proposed Tax Law on Fitness Expenses

The current tax law allows a deduction under IRS code Section 213 for amounts paid for qualified medical care expenses that are not covered by insurance. While weight reduction programs can be deductible if directed by a doctor, gym memberships and fitness equipment are generally not deductible.

The PHIT Act aims to expand what constitutes medical care to include certain fitness-related costs such as gym memberships, exercise instruction (group or personal trainers), participation in physical activities (sports leagues) and safety equipment for such programs.

Certain sports such as sailing, golfing, horseback riding and hunting do not qualify, and neither do the purchase of exercise books or instructional videos. Under the bill, the tax deduction for memberships and instruction are capped at $1,000/$500 for married/single taxpayers. Fitness related safety equipment is capped at $250.

Limits on Deductibility

As great as this sounds, there are a few potential issues with the execution of the bill, which could prevent it from helping as many people as possible. The first is the medical expense floor.

Under tax law, deductions are limited to the amount of qualified medical expenses that exceed 7.5 percent of AGI. This means that anyone with an AGI of $85,000 would have to have $6,375 in medical expenses before they start to see any incremental benefit. Add to this the increased standard deduction (to $24,000/$12,000 for married/single taxpayers) under the Trump tax plan, and almost no one would qualify for the PHIT Act deduction since only an estimated seven  percent of taxpayers will continue to itemize under the new law. This also disproportionately impact lower income taxpayers, who are more prone to obesity.

The PHIT Act also provides a second way to capture the deduction through the use of a Health Savings Account. Instead of a deduction, taxpayers could pay for the qualified fitness costs with pre-tax dollars up to $1,000.

The third and last way to benefit from the PHIT Act as written would be to reimburse yourself through a Health Flexible Spending Arrangement or Health Reimbursement Arrangement. The problem here is that you will need your employer to offer one of these plans before you can take advantage of them.

Watch and Wait

OK, so you’re thinking that you will get the deduction though one of the ways above – but don’t run out and join the gym just yet. Back in 2015, a similar bill was proposed that sought to allow a $2,000 deduction for fitness-related costs. Ultimately, the bill died; and there’s a good chance this will happen again since the PHIT Act would tack on $3.5 billion to the deficit over the course of 10 years.

As always, consult your tax professional for the latest news in legislation that might affect your bank account.

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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