A health FSA is an employer-sponsored benefit program in which an account, set up in an employee’s name, is used to reimburse the employee for certain medical expenses.
Reimbursements by FSAs are not subject to tax if the employee properly substantiates the purchase. Traditionally, substantiation meant that the employee provided independent verification of the purchase, such as a receipt, which described the service or product, the date of the service or sale, and the amount. However, under the Federal Health Care Reform Law beginning January 1, 2011, over-the-counter medications and drugs will require a doctor’s prescription to be eligible for reimbursement. Over-the-counter medications include, but are not limited to, the following:
- Allergy medicines;
- Pain relievers; and
- Cold medicines.
Keep in mind, this prescription requirement will not impact a participant’s ability to be reimbursed for eyeglasses, contact-lens solutions, adhesive bandages and dental care. It will only impact medications. The only medication that is exempt from the prescription requirement is insulin.
Further, it is important to note that the effective date of January 1, 2011 is for all FSA plans regardless of the plan year. This means that if your plan is a fiscal year plan, i.e., April 1 through March 31, you will need to evaluate changes to your processes and procedures for reimbursement mid-plan-year to include the new prescription requirement.
If you have any questions or need more information, please contact your Schneider Downs representative.
For more information, contact Scott Rain at firstname.lastname@example.org.
Schneider Downs provides accounting, tax, wealth management, technology and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.