Saturday, January 1, 2011

IRS allows use of FSA debit cards for over-the-counter medications

On December 23rd, the IRS issued new guidance, Notice 2011-5, as well as answers to frequently asked questions regarding the use of FSA debit cards for the purchase of over-the-counter (OTC) medications in 2011.

Previous guidance indicated that most OTC medicines and drugs could no longer be purchased with the debit card due to the need to present a written prescription from a licensed provider.

Based on the new IRS guidance, debit cards may continue to be used after January 1, 2011, to purchase OTC medicines and drugs at drug stores and pharmacies and mail order and web-based vendors, contingent on the following:

• The individual must present a valid written prescription from a licensed provider to the pharmacy prior to purchasing the OTC item. In order for the OTC item to be paid through your FSA debit card, the pharmacist will have to assign an Rx number and then dispense the OTC medicine or drug.
• The pharmacy is required to retain a record of the transaction, including the Rx number, name of purchaser (or name of the person to whom the prescription applies), and the date and amount of the purchase.
• These records must be available for inspection by the employer or its agent, such as the employer’s FSA vendor.
• The debit card system must not accept an OTC drug or medicine unless an Rx number has been assigned.
• The debit card system must meet existing IRS requirements that are intended to limit use of the debit card to only tax-qualified medical care expenses. Among other requirements, prior to using the card, the employee/individual must attest he will use the card only for tax-qualifying expenses.

Reimbursement for OTC medicines or drugs purchased in 2010, but filed for reimbursement in 2011, will not be subject to these new procedures.

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