New Rules on Flexible Spending Accounts

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Under current law, over-the counter medicines or drugs are not deductible as medical expenses if you itemize on Schedule A of your Form 1040. However, such items can be reimbursed tax-free from an employer-sponsored Flexible Spending Account.

The Affordable Care Act will change this beginning next year. The cost of an over-the-counter medicine or drug can no longer be reimbursed from an FSA, a Health Reimbursement Account, a Health Savings Account or an Archer Medical Savings 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 rule applies only to purchases made on or after Jan. 1, 2011. In many cases, an employer’s FSA will allow employees to submit expenses against funds that have been set aside in an account for the year 2010 until March 15, 2011. So you may still have until that date to submit a claim to be reimbursed for medicines or drugs you purchase without a prescription in calendar year 2010.  

If there is money available in your medical FSA you may want to stock up on over-the-counter medicines and drugs before the end of the year.

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