Learning that a medicine you use regularly is available
over-the-counter at a lower price is good news. Even better, thanks
to an IRS ruling last September, you may be able to take advantage
of a tax-smart way to buy it.
Learning that a medicine you use regularly is available over-the-counter at a lower price is good news. Even better, thanks to an IRS ruling last September, you may be able to take advantage of a tax-smart way to buy it.
Here’s how: You can now tap your employer-sponsored flexible spending account (FSA) to pay for nonprescription drugs and certain medical supplies.
The usual cautions apply. Costs have to be incurred in the current plan year, the payments can’t be reimbursed by other means, and you’ll need to provide documentation. But since the amount drawn from your FSA is excluded from income and you’re using pre-tax dollars to cover expenses, hanging on to receipts could be worthwhile.
Another benefit: The ability to pay for these items through your FSA might help you work around the plan’s use-it-or-lose-it feature. Instead of forfeiting money remaining in your account at year end, you can apply the cash toward the purchase of medicine you know you’ll need. Caution: Your FSA may have a “reasonable amount” provision that limits quantities.
What items qualify under the new rules? Typically, nonprescription medications or supplies that you buy to ease an injury or relieve sickness for yourself, your spouse, or your dependents are reimbursable. Your employer can provide a specific list, but examples are antacids, bandages, laxatives, contraceptives, pain relievers, and cold medicines.
However, toiletry and personal care products, such as lip balm or face moisturizer, still fail to qualify. Similarly, cosmetic preparations (those for teeth whitening, for instance) are generally not eligible. General purpose items like sunscreen may be reimbursable if your doctor provides a statement showing a history of skin cancer or other medical need.
Do a bit of planning, and you may be able to use this recent tax ruling to cut your health care costs.
