Costs of COVID-19 testing: Can they be deducted as an extraordinary expense?

In the wake of the COVID-19 pandemic, spending on hygiene and medical products has skyrocketed. In addition to medical masks and disinfectants, COVID-19 tests in particular are among the new expense categories. But how should these expenses be treated for tax purposes? Is it possible to claim them as a “special financial burden” in a private context? The COVID-19 pandemic is a unique and, above all, new situation for all of us. The tax authorities are no exception. As a result, there is still no clear position regarding “special financial burdens.” In this article, we would nevertheless like to take a look at the topic and find an answer based on existing tax legislation. Can COVID-19 tests be claimed as extraordinary expenses?

Introduction: What are extraordinary burdens?

Before we address the main question, we’d like to briefly explain what an extraordinary burden is in tax law. When looking at a tax return, it’s clear that most of the information and tax-relevant expenses relate to income. Expenses that are more private in nature (e.g., a new smartphone for personal use), on the other hand, are not included. However, there is an exception that allows certain private expenses to be deducted. This exception applies whenever an extraordinary burden is involved. The idea is simple: Expenses can be deducted when costs arise in life that are unavoidable and of an extraordinary nature. As a rule, extraordinary expenses include, for example, out-of-pocket medical costs, expenses for eyeglasses and dentures, or, where applicable, the costs of a funeral.

When it comes to extraordinary expenses, it is important to note that claiming them on your tax return is not always worthwhile. You can only expect a tax benefit if the so-called “reasonable personal contribution”—which is calculated individually for each taxpayer—is exceeded. However, whether or not it is worth claiming the costs on your tax return is irrelevant to the question addressed in this article. The primary issue is whether the expenses for COVID-19 tests can be claimed as extraordinary expenses at all.

The COVID-19 Test and Necessity

A fundamental requirement for extraordinary expenses is that the costs must be unavoidable. This generally applies to all medical expenses. As a rule, therefore, costs are only covered if the taxpayer can provide a medical certificate or a prescription. The law defines inevitability in § 33(2) sentence 1 of the Income Tax Act (EStG). According to this provision, costs are considered inevitable if the taxpayer cannot avoid them for legal, factual, or moral reasons. Costs that serve solely to prevent an illness and do not demonstrate necessity are therefore excluded. On this basis, we can address the initial question.

Is the COVID-19 test an extraordinary burden?

To determine whether a COVID-19 test can be classified as an extraordinary burden, the reason for the test must be considered. One reason may be symptoms of illness. In this case, it falls under health insurance coverage, which in turn answers the question of tax deductibility. The taxpayer bears no costs and therefore cannot deduct them. A similar situation applies to mandatory COVID-19 tests required by an employer. In this case, the costs are borne by a third party (the employer). There is therefore no tax relevance for you as a private individual. Since in the aforementioned cases there was no financial burden on the taxpayer to begin with, there is ultimately no interest in deducting the costs. The situation is different if the sometimes high costs are borne by the taxpayer themselves.

If a taxpayer voluntarily decides to get tested at their own request, they may have to bear the costs themselves. So what about extraordinary financial burden in this case? To answer this question, we must again consider the element of inevitability. Deductibility as an extraordinary burden requires the inevitability explained earlier. Since this is a voluntary test, this condition is generally not met. A potential exception could exist if there is a genuine reason to take the test. One possibility would be that a test becomes necessary to protect household members in the risk group. In this situation, the cost of the COVID-19 test could constitute an extraordinary burden. For the majority of taxpayers, however, the extraordinary burden will fail due to the lack of inevitability.

Are COVID-19 tests still considered extraordinary?

Section 33(1) of the Income Tax Act (EStG) stipulates that an expense is considered an extraordinary burden only if comparable expenses are not incurred by the vast majority of taxpayers. Given that COVID-19 testing has become almost routine during the pandemic, it is doubtful whether it constitutes an extraordinary expense. Therefore, it is doubtful that it will be accepted as tax-deductible. It remains to be seen how the tax authorities will rule on this matter in the future.

Summary: COVID-19 testing is not an extraordinary burden

Given all applicable legal frameworks, it must be assumed that a COVID-19 test conducted independently and voluntarily does not constitute an extraordinary burden. Ideally, you should discuss any potential cost items with your tax advisor in due course. As time goes on, initial practical experience regarding the treatment of these expenses is also likely to become available.

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