Legislative update

 

Flexible Spending Accounts: IRS issues rules on over-the-counter purchases

On Sept. 3, 2010, the U.S. Internal Revenue Service (IRS) issued guidance to reflect the prohibition on the use of flexible spending accounts (FSAs) to pay for over-the-counter medicines and drugs beginning in 2011, as required under the health care reform overhaul.

Details on the new rules are provided in IRS Notice 2010-59, IRS Revenue Ruling 2010-23 and related questions and answers, all posted on the IRS web site.

Under the new standard, the purchase of over-the-counter medicines or drugs purchases made on or after Jan. 1, 2011 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 IRS clarified that the new rules do not apply to items for medical care that are not medicines or drugs, such as crutches, supplies such as bandages, and diagnostic devices.