Women are at risk of being taxed on abortion travel benefits

Women who can expense travel for an abortion at their company may wind up with a tax bill on the benefit.

Pledges by companies including Citigroup Inc. and Walt Disney Co. to support employees in states expected to restrict or outlaw abortion have given rise to questions over the mechanics of providing such assistance, and the legal and privacy risks associated with it. Adding to the administrative quagmire is the issue of how these benefits will get taxed, and if a portion of the benefit shows up as income on their returns.

And while an added financial burden is unlikely to deter women in need of abortions, it's one more complication after the U.S. Supreme Court struck down federal protections on the procedure. For U.S. employers, a majority of whom have said they'll hold off from expanding existing benefits to accommodate abortion-related travel, the uncertainty could give them even more reason to stay on the sidelines. 

Valerie Plesch/Bloomberg

"For the most part, when I speak with clients, they don't want the fight," said Kellie Thomas, an attorney at Jackson Lewis who is part of a team advising companies on how to structure their plans. "They want to support employees, but there's a lot of other considerations there."

There's no cookie-cutter template for such a plan. Some companies are giving lump-sum allowances, while others are adding or bolstering the benefit as part of eligible expenses out of a health-savings account. A company that's self-insured — meaning it funds its own insurance plan — will likely have more flexibility for new coverage.

Meanwhile, companies covered by so-called fully-insured policies, which are licensed by the state, are unlikely to be allowed by regulators to add abortion travel to their policies if the procedure is criminalized or restricted in that region, according to Thomas.

Benefits and costs

Regardless of a plan's structure, Internal Revenue Service rules will apply. Currently, regulations allow for an employee to be reimbursed tax-free for $50 a night for lodging and 22 cents a mile for trips associated with health care, and most benefits related to abortion travel are likely to quickly outrun that cap, Thomas added.

It's also likely that other expenses covered by many of the plans, such as meals, will also later be reported as income for the employee because they aren't tax deductible, she said. 

People living in states that have banned abortion care will have to travel an average of 276 miles in each direction to access the procedure, calculations by Bloomberg show. Some will have to travel from one hostile state to another for care, meaning they may also have to undergo 24- or 72-hour waiting periods between a consultation and an abortion.

The average daily rate for a hotel room in the U.S. during the week of July 23 was $158.79, according to hotel analytics company STR. From this month, the IRS increased the reimbursement rate for business travel to 62.5 cents a mile, which applies to employees driving for work. 

If an employer reimbursed mileage at the 62.5 cents per mile business rate for 552 miles, and paid the full $158.79 in hotel costs for three nights, that would add up about $821 in costs  — and $550 of that would exceed the IRS deductions. The average tax rate in the U.S. was 22.6% in 2021, according to the Organization of Economic Co-Operation and Development, which would imply an added cost of about $124.

Those most likely to struggle with the cost of terminating a pregnancy — which Planned Parenthood estimates at $750 to $1,500, depending on the trimester— are also least likely to work at companies offering to pay for their travel. Three quarters of the women who get abortions in 2014 were poor or low income, according to the latest data from the Guttmacher Institute. 

Another hurdle is that the IRS only allows deductions for lawful medical expenses. If travel for an abortion is determined to be illegal, it won't be tax deductible and many companies may be forced to drop the coverage to avoid legal risks, Thomas said.

The legal question also puts a premium on plans with the highest level of privacy for employees, according to Kirsten Vignec, who chairs the compensation and employee benefits group at Tampa law firm Hill Ward Henderson. 

If reimbursement for travel costs related to abortion is outside of direct medical coverage, where privacy laws are the most stringent, an alternative for companies would be to incorporate it into a wider pool of funds that covers more than abortion travel. That way, they will have less direct knowledge of how employees are using the benefit, she added. 

"All companies right now are still trying to figure out what's going to work best for them," Vignec said. "And they're going to prioritize certain aspects because nothing is going to be perfect."

The longer the uncertainty lingers, the more likely that companies stay on the sidelines.

In 2019, a Kaiser Family Foundation survey found that 10% of employees work at companies that had already opted to specifically exclude abortion coverage.

The study estimated about 153 million Americans rely on company health plans for coverage, and it remains unclear how many even have access to coverage for the procedure itself, let alone reimbursement for any necessary travel, said Alina Salganicoff, director of Women's Health Policy at Kaiser.

"It is difficult to shake out," Salganicoff said. "People are looking for answers that we don't have right now."

— With assistance from Ella Ceron and Claire Ballentine