The IRS has issued guidance on statutory changes concerning the use of certain tax-favored arrangements, such as flexible spending accounts (FSAs), to pay for over-the-counter medicines.
The Affordable Care Act, enacted in March, established a new uniform standard that applies to FSAs and health reimbursement accounts (HRAs). The standard is effective Jan. 1, 2011.
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, or deductibles.
The new standard applies only to purchases made on or after January 1, 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 Jan. 1, 2011, for Health Savings Accounts and Archer Medical Savings Accounts.
For details on current rules: www.irs.gov/pub/irs-pdf/p969.pdf.
For updates on this and other health care reform provisions: www.irs.gov/newsroom/article/0,,id=220809,00.html.