Vision Payroll

In Announcement 2011-14, the Internal Revenue Service (IRS) “has concluded that breast pumps and supplies that assist lactation are medical care under § 213(d) of the Internal Revenue Code because, like obstetric care, they are for the purpose of affecting a structure or function of the body of the lactating woman.” Therefore, assuming all other requirements are met, these expenses qualify as deductible medical expenses.

Reimbursement Allowed Under Flexible Spending Arrangements

Since these amounts qualify as deductible medical expenses, reimbursements of “these expenses under flexible spending arrangements [FSAs], Archer medical savings accounts, health reimbursement arrangements, or health savings accounts are not income to the taxpayer.”

Publication 502 to Be Revised

The IRS will revise Publication 502, Medical and Dental Expenses, to include this information

Contact Vision Payroll for Further Information

Contact Vision Payroll if you have any questions on Announcement 2011-14.

This week’s question comes from Eric, an HR manager. I know there are changes to flexible spending arrangements (FSAs) because of health care reform. How does health care reform affect reimbursements for over-the-counter medicines in FSAs? Answer: The Patient Protection and Affordable Care Act (PPACA) made changes to reimbursements for over-the-counter medicines in the following types of accounts:

• Flexible Spending Arrangements (FSAs),
• Health Reimbursement Arrangements (HRAs),
• Health Savings Accounts (HSAs), and
• Archer Medical Savings Accounts (Archer MSAs).

Over-the-Counter Medicines Generally Are No Longer Reimbursable

Generally, the cost of an over-the-counter medicine or drug cannot be reimbursed from the 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, eyeglasses, contact lenses, co-pays and deductibles.

Change Is Effective for 2011

The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

IRS Provides Guidance on New Rules

The Internal Revenue Service (IRS) recently released Notice 2010-59 to provide guidance to employers and employees on the impact of PPACA and how it revises the definition of medical expenses as it relates to over-the-counter drugs.

Rev. Rul. 2003-102 Obsoleted

In conjunction with this change, the IRS also released Rev. Rul. 2010-23, which obsoletes Rev. Rul. 2003-102. This ruling provided guidance on employer reimbursements of amounts paid by an employee to purchase nonprescription medicines or drugs.

Employees Need to Plan for Changes When Making 2011 Elections

Vision Payroll recommends employees start to plan now to account for the impact of these changes on how they will make their elections under these types of plans.