Flexible Spending Accounts IRS Changes and Latest News
IRS flex savings plan changes for over-the-counter drugs
In September 2003, the IRS ruled that over-the-counter drugs and medicines could be reimbursed through a health care flex savings plan. FSAs were once reserved only for prescription medication and doctor visits. The new ruling lists qualifying expenses to include OTC drugs such as cough medicine, aspirin and decongestants. Many prescription drugs have moved to the over-the-counter market in recent years.
Many major corporations now offer debit cards for their health care spending accounts. These cards withdraw money directly from an individual's FSA account and eliminate the claim submission process. This Treasury Department ruling is significant because many flexible spending account administrators were afraid to allow direct access to funds for purchases that had not been scrutinized by them. The debit card feature should improve participation in the plans because workers are relieved of the lengthy claim submission and reimbursement process.
Grace Period offered through Congress and flexible spending account legislation
The Treasury Department in May 2005 issued a notice that granted employers the option to extend the FSA deadline for up to 10 weeks (March 15 for year end plans). The House passed a bill that would let employees who participate in health care flexible spending accounts to roll over up to $500 in unused funds each year or transfer the money to a health savings account. This deadline extension is the latest effort by tax officials to make spending plans more attractive.
The problem here is that it is basically up to the employers to implement the extended access option. So far according to the DeloitteCenter for Health Solutions only about one-third of the flex savings plans have been amended to allow the additional FSA carryover period.
Other news related to federal tax code for health care flex savings plan
There has been talk in Washington about the need to raise contribution limits and make the medical portion of flexible spending more “flexible. " The grace period rollover amount is also under scrutiny. Stay tuned for more flexible spending account IRS changes.
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