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IRS To Provide Tax Breaks for 23AndMe DNA Test Kit Customers

The tax agency’s decision was first made in May 2019. It allows the purchase of 23andMe kits using pretax dollars held in Flexible Savings Accounts (FSA) and Health Savings Accounts (HSA).

It’s a significant boost to a company that is already reaping the benefits of having a first-mover advantage. DNA testing kits are riding a vast popularity wave, mostly because of the ancestry services they offer.

Other than ancestry results, 23andMe’s Health + Ancestry Service option offers additional health reports based on your DNA profile. These tell you whether you carry any variant of a genetic condition that might be passed on to your children.

They also tell you your chances of developing certain medical conditions, as well as lifestyle choices that improve healthy living.

23andMe’s Health + Ancestry Service kit normally retails at $199. The IRS tax break means you can pay up to $117.74 using your FSA or HSA savings.

Potential effects of IRS tax breaks


23andMe has always had one of the best DNA test kits in an increasingly competitive market. Its focus on health screening sets it apart from other companies that mainly concentrate on ancestry results.

By classifying its health and ancestry kit under medical care, the tax agency has made it significantly cheaper. More purchases are expected, especially from FSA holders towards the end of the year.

That’s because the amount held in these accounts must be used within the year or be forfeited. The kit has also become more attractive to millions of HSA holders across the US. While this is good news for 23andMe, the real potential lies in the DNA that clients submit for testing.

The more kits sold, the bigger the company’s DNA database grows, which presents enormous opportunities. Last year the company partnered with pharmaceutical giant GlaxoSmithKline (GSK) to use its genetic resources for research purposes.

The four-year collaboration is aimed at using human genetics to develop new drugs. As part of the deal, GSK also made a $300m equity investment in 23andMe. Any medical breakthroughs from the alliance are bound to be lucrative for the California based private company.

Common criticisms

reasons for a dna test

Tax breaks might make 23andMe’s testing kits more affordable, but the company still faces some hurdles. The biggest criticism leveled at it, and other DNA testing services has always revolved around privacy.

DNA databases are already being shared with law enforcement, insurance providers, and other third parties. Most customers are unaware of this fact when purchasing testing kits.

By submitting their DNA, they automatically agree to wide-ranging use of their genetic profiles. The debate is still raging over how these companies can use genetic samples in their possession. Is it ethical to utilize your DNA for medical research when you only sent it out of ancestral curiosity?

23andMe’s testing method has also come under fire for using microarray testing instead of the more thorough sequencing method. The former reads DNA profiles at specific points which cause noticeable differences in people, while the latter evaluates larger portions.

Microarray genotyping is fast and affordable but misses a lot of information. 23 and has also been accused of conducting medical research that would benefit certain races.

Because most of its users have European ancestry, medical research using those DNA samples would automatically favor them. A good example is the new Diabetes test. It turned out to be more useful to white people, even though African Americans and Native Americans suffer more disproportionately from the condition.

Implications for other health care startups

health care startups

The IRS tax break is revolutionary in the sense that it identifies only a part of 23andMe’s kit as a medical device. The ancestry testing aspect is not eligible because it doesn’t have any health care considerations.

Although the FDA allows the company to advertise its kit as a medical device, it doesn’t have 100% confidence in its effectiveness. The federal agency warned users and healthcare professionals against using test results as a basis for making medical treatment decisions.

Nevertheless, the IRS’ decision might be a positive sign for other health-focused tech companies. An example is wearable tech devices such as the Apple Watch, FitBit, ECG and blood pressure monitors, and Philips’ wearable biosensor.

As with DNA kits, data collected by these devices seems to be more valuable than the one-off amount spent on purchasing them. As such, tax breaks will lower prices, which will increase uptake as well as the medical information they collect.


Free DNA Testing

The tax break is a welcome development for both consumers and 23andMe.However, its full outcome might be felt beyond the booming DNA testing and ancestry industry.

Pharmaceutical companies, healthcare providers, insurers, and tech startups are just some of the parties expected to feel its long term effects.

About the Author Charles McKnight

I'm just another amateur genealogist investigating my American-Scots-Irish lineage. I built after buying all of the leading DNA tests to discover everything I could about my family history. Hopefully, this site will save you time and demystify the emerging science of DNA-based genealogy, for your family project.

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