IRS Issues FSA Guidance for OTCs

SN STAFF

WASHINGTON — The Internal Revenue Service last week issued new guidance allowing the continued use of health flexible spending arrangement and health reimbursement arrangement debit cards for the purchase of prescribed over-the-counter medicines and drugs.

The new guidance modifies previous guidance to permit taxpayers to continue using FSA and HRA debit cards to purchase over-the-counter medications for which the taxpayer has a prescription. Effective after Jan. 15, 2011, in accordance with the new guidance, this use of debit cards must comply with procedures reflecting those that pharmacies currently follow when selling prescription medications.

The procedures include requirements that a prescription for the medication be presented to the pharmacy that dispenses the medication and that proper records be retained. In accordance with the Affordable Care Act, the cost of over-the-counter medicines or drugs can be reimbursed from a health FSA or HRA if a prescription has been obtained.

The new guidance, IRS Notice 2011-5, as well as answers to frequently asked questions on IRS.gov, also contain further details on health FSA and HRA debit card purchases.