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.
© 2010 – 2011, Khaleef Crumbley. All rights reserved.
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{ 8 comments… read them below or add one }
It will certainly impact people who smartly take advantage of this nice benefit. I have actively made sure that purchases such as contact lens solution, OTC meds, etc have been made with pre-tax dollars. If you run the numbers, the impact can be more than just a few dollars per family! It can and will add up.
Well, like you said, stock up now!
I agree, many families see substantial tax savings by using an FSA for non-prescription items. There are things that most people wouldn’t believe that are covered…at least for the next few months.
I completely underestimated how much to save in my HSA this year. My son getting his wisdom teeth out totally blew my plan out of the water!!!
I know how that feels! I did that the first year I had an FSA.
We went high this year because of a few anticipated costs…we still have a long way to go (although some thing are coming up for us). I would hate to lose the money!
It’s unfortunate that OTC drugs are no longer going to be covered unless you try Rx first. It’s unwise to remove incentives for responsible behavior.
I think that is the biggest problem with healthcare in this country! We have removed the incentives for healthy behavior and have subsidized unhealthy living! Even insurance companies will deny a claim for preventative care but have no problem paying for coronary treatment!
I put in several thousand this year because I knew we were having a baby and would have plenty of expenses that would be covered by an FSA. I’ve already maxed out my FSA for the year now that the baby has come – and we’ll end up saving hundreds of dollars in taxes because of our FSA.
Next year? I’m pretty sure I won’t be putting in nearly as much since there are more restrictions and less things are eligible. In 2013 they’ll also be lowering the amount you can put in your FSA as well. *sigh. Good things like this never lasts.
We are going to drop our contribution next year as well. We had a few planned expenses this year – nothing as wonderful as a baby! I’m really going to miss all of these benefits because it’s hard to reach that 7.5% of AGI threshold on medical expenses – plus you can write off OTC products anyway.
Thanks for stopping by and leaving a comment!
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