[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.214A-5]

[Page 346-347]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.214A-5  Other special rules relating to employment-related expenses.

    (a) Payments to related individuals. No deduction will be allowed 
under section 214(a) and Sec. 1.214A-1(a) for the amount of any 
employment-related expenses paid by the taxpayer to an individual who 
bears to the taxpayer any relationship described in section 152(a) (1) 
through (8). These relationships are those of a son or daughter or 
descendant thereof; a stepson or stepdaughter; a brother, sister, 
stepbrother, or stepsister; a father or mother or an ancestor of either; 
a stepfather or stepmother; a nephew or niece; an uncle or aunt; or a 
son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-
law, or sister-in-law. In addition, no deduction will be allowed under 
section 214(a) for the amount of any employment-related expenses paid by 
the taxpayer to an individual who qualifies as a dependent of the 
taxpayer for the taxable year within the meaning of section 152(a)(9), 
which relates to an individual (other than the taxpayer's spouse) whose 
principal place of abode for the taxable year is the home of the 
taxpayer and who is a member of the taxpayer's household.
    (b) Expenses qualifying as medical expenses. An expense which may 
constitute an amount otherwise deductible under section 213, relating to 
medical, etc., expenses, may also constitute an expense for which a 
deduction is allowable under section 214(a) and Sec. 1.214A-1(a). In 
such a case, that part of the amount for which a deduction is allowed 
under section 214(a) will not be considered as an expense allowable as a 
deduction under section 213. On the other hand, where an amount is 
treated as a medical expense under section 213 for purposes of 
determining the amount deductible under that section, it may not be 
treated as an employment-related expense for purposes of section 214. 
The application of this paragraph may be illustrated by the following 
examples:

    Example 1. A Taxpayer pays $520 of employment-related expenses in 
the taxable year for the care of his child during one month of such year 
when the child is physically incapable of caring for himself. These 
expenses are incurred for services performed in the taxpayer's household 
and are of a nature which qualify as medical expenses under section 213. 
The taxpayer's adjusted gross income for the taxable year is $5,000. Of 
the total expenses, the taxpayer may take $400 into account under 
section 214; the balance of the expenses, or $120, may be treated as 
medical expenses to which section 213 applies. However, this amount does 
not exceed 3 percent of the taxpayer's adjusted gross income for the 
taxable year and is thus not allowable as a deduction under section 213.
    Example 2. Assume the same facts as in Example 1. In such case it is 
not proper for the

[[Page 347]]

taxpayer first to determine under section 213 his deductible medical 
expenses of $370 ($520-[$5,000x3%]) and then claim the $150 balance as 
employment-related expenses for purposes of section 214. This result is 
reached because the $150 balance has been treated as a medical expense 
in determining the amount deductible under section 213.
    Example 3. A taxpayer incurs and pays $1,000 of employment-related 
expenses each month during the taxable year for the care of his child. 
These expenses are incurred for services performed in the taxpayer's 
household, and they also qualify as medical expenses under section 213. 
The taxpayer's adjusted gross income for the taxable year is $18,000. No 
reduction in the amount of the expenses is required under Sec. 1.214A-
3, and the taxpayer takes $4,800 ($400x12) of such expenses into account 
under section 214. The balance, or $7,200, he treats as medical expenses 
for purposes of section 213. The allowable deduction under section 213 
for such expenses is limited to the excess of such balance of $7,200 
over $540 (3 percent of the taxpayer's adjusted gross income of 
$18,000), or $6,600.

[T.D. 7411, 41 FR 15410, Apr. 13, 1976]