SOURCE: irs.gov
Washington, D.C. . . . The Internal Revenue Service today issued guidance reflecting statutory changes regarding the use of certain tax-favored arrangements such as flexible spending arrangements (FSA’s), to pay for over-the-counter medicines and drugs.
The Affordable Care Act, enacted in March, established a new uniformed standard that, effective January 1, 2011, applies to FSA’s and health reimbursement arrangements (HRA’s). Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after January 2, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.
A similar rule goes into effect on January 1, 2011 for Health SAvings Accounts (HSA’s) and Archer Medical Savings Accounts (Archer MSA’s).
For details on current rules, see Publication 969, Health Savings Account and Other Tax-favored Health Plans.