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Treasury and IRS Announce over-the-counter Drugs
to be covered by Health Care Flexible Spending Accounts
Today, the Treasury Department and the IRS announced over-the-counter
drugs can be paid for with pre-tax dollars through health care flexible
spending accounts. Treasury and IRS issued guidance clarifying that
reimbursements for nonprescription drugs by an employer health plan
are excluded from income. Thus, reimbursements by health flexible
spending arrangements (FSAs) and other employer health plans for
the cost of over-the-counter drugs available without prescription
are not subject to tax if properly substantiated by the employee.
"Flexible Spending Accounts are an important tool in helping
people meet their health care costs," stated Treasury Secretary
John Snow. "Since many prescription drugs have moved to the
over-the-counter market, this action today makes paying for them
a little bit easier to swallow."
"Flexible Spending Accounts were established under the tax
code to provide incentives for better health care," said IRS
Commissioner Mark W. Everson. "This action is a sensible expansion
and simplification of the program consistent with existing law."
Drugs are increasingly becoming available over-the-counter without
prescription. Many health plans no longer cover the cost of these
drugs as over-the-counter. While an over-the-counter drug is less
expensive than the prescription drug, the cost to many consumers
increases because the price paid by the consumer for the over-the-counter
drug is greater than the co-payment by the consumer when the drug
was covered by insurance. This is especially an issue for individuals
who remedy chronic health problems by regularly taking an over-the-counter
medicine.
Revenue Ruling 2003-102 explains that the statutory exclusion for
reimbursements of employee health expenses is broader than the itemized
deduction for medical expenses (which does not apply to nonprescription
drugs). Thus, the guidance clarifies that employer reimbursements
of employee health expenses that are nonprescription drugs, including
reimbursements through health
FSAs and Health
Reimbursement Arrangements (HRAs), are excluded from income
like other employer reimbursements of employee health expenses.
This will result in savings to consumers with access to employer
plans who may purchase nonprescription drugs. However, for purposes
of the itemized medical expenses deduction, the cost of such over-the-counter
drugs continues to be non-deductible.
EXAMPLES OF ITEMS THAT ARE NOT
REIMBURSABLE
- Items that are merely beneficial to your general health;
- Dietary supplements that are merely beneficial to your health;
- Vitamins;
- Toothpaste, mouthwash
HOW TO RECEIVE REIMBURSEMENT
To receive reimbursement for over-the-counter drugs, you must provide
documentation that substantiates the expense along with your completed
and signed Claim
Form identifying for whom the over-the-counter drug was purchased.
Proper documentation must be in the form of an electronically generated,
itemized cash register receipt (i.e., a cash register receipt with
the name of the over-the-counter drug electronically printed on
it and not handwritten, as illustrated below):
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Acceptable
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Unacceptable
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As with other qualified expenses, EBS/Atlanta
cannot accept cancelled checks or credit card receipts as proof
of the expenditure. Should you have any questions concerning this
IRS Ruling, whether the over-the-counter drug you purchased is reimbursable,
or the required documentation, please do not hesitate to contact
us or call us toll-free at 800.647.3709.
Be sure to check back often for legislative updates and news of
importance!
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