Those of you who have been following my recent CVS shopping trips know that I have a flexible spending account. However, the list of Flexible Spending Account Eligible Expenses will see some major changes for 2011!
How a Flexible Spending Account normally works – before the changes to the list of Flexible Spending Account Eligible Expenses for 2011 – is that one has money taken out of their paycheck to cover medical expenses that their insurance doesn’t pay for – such as deductibles, co-payments and co-insurance, and over-the-counter medicine. This comes out BEFORE taxes, so they automatically get a tax “write-off” for their medical expenses!
For a full explanation of a flexible spending account and to see why I love them so much, please read, our article covering the basics of a flexible spending account.
As far as CVS purchases, I would use my FSA to buy any medically-related item that offered cash back. This way I could get money (ECBs) from CVS without spending a dime from my bank account!
So, what’s changing to the list of Flexible Spending Account Eligible Expenses for 2011?
As part of the Patient Protection and Affordable Care Act (Obamacare) that was signed into law back in March, there will be massive changes to FSAs and HSAs (Health Reimbursement Arrangements).
Effective January 1, 2011 you will no longer be able to be reimbursed for the cost of an over-the-counter drug, unless you get a prescription first!
According to a recent communication from the IRS:
The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.
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.
So, if you used your FSA to purchase up on Tylenol, Nyquil, and other OTC drugs, you better stock up by December 31, 2010!
Plan wisely for next year:
When you decide how much to contribute for next year during open enrollment, keep these changes to the flexible spending account eligible expenses in mind – because you will lose any amount not spent by the deadline. I already know that I’m going to contribute a lot less than this year!
Of course, since we now know that the Bush tax cuts are going to be extended, it will be a little easier to plan for 2011. It would also be wise to consider a few of the best investments for 2011, in order to be able to react to any economic or legislative change.
Need more information?
For details on how FSA’s and HSA’s are governed, see Publication 969 , Health Savings Accounts and Other Tax-Favored Health Plans.
To learn more about taxes, please visit KNS Financial’s Tax Guide.