Flexible Spending Account Reimbursements

If so, you should be aware that over-the-counter drugs now qualify for reimbursements from these accounts. The IRS recently announced that over-the-counter drugs such as antacids, allergy medicines, pain relievers and cold medicines now qualify as medical costs. This change occurred in part because of the significant number of items that have recently been converted from “prescription only” to “over the counter” medications.

Even with the change, not all over the counter health aids qualify. For example, the IRS notice indicates that vitamins are an example of a health aid that does not qualify. Likewise, cosmetics, toiletries, dietary supplements and sundry items do not qualify.

Even with the change, not all over the counter health aids qualify. For example, the IRS notice indicates that vitamins are an example of a health aid that does not qualify. Likewise, cosmetics, toiletries, dietary supplements and sundry items do not qualify.

The inclusion of the over-the-counter drugs for flexible spending accounts does not change the income tax rules for the deduction of medical expenses for prescribed drugs. Over the counter medications are not currently deductible as itemized deductions on an individual’s annual income tax return.

If you are not familiar with the Flexible Spending Account (also known as a “125 Plan” or “Cafeteria Plan”), you should be aware that these arrangements can be valuable employee benefits because they allow employees to pay for some or all of their out of pocket medical, dental and vision expenses; insurance co-pays and coinsurance costs; insurance sharing and dependent coverage as well as child care costs with pre-tax dollars.

These arrangements can help employees mitigate the increased medical costs that are being passed on to them due to the huge increases in employer health care costs that have occurred in the past several years. Your tax, benefits or business advisor can explain the costs and benefits of flexible spending accounts and can assist you in determining whether they are appropriate for you.