Thursday, April 28th, 2011
Note: None of this should be taken as legal or tax advice.
If passed, the bill, effective January 1, 2013, would amend the Internal Revenue Code to allow unused amounts contributed to flexible spending arrangements to be paid back to the participants as taxable income after the close of a plan year. Currently, such unspent amounts must be forfeited by the employee due to the "use-it-or-lose-it rule".
What do you think?
Read below for the current text of
"H.R. 1004: Medical FSA Improvement Act of 2011".
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SECTION 1. SHORT TITLE.
This Act may be cited as the ‘Medical FSA Improvement Act of 2011’.
SEC. 2. ADDITION OF TAXABLE DISTRIBUTIONS.
(a) Treatment of Amounts Expended for Medical Care- Section 105 of the Internal Revenue Code of 1986 (relating to amounts received under accident and health plans) is amended by inserting at the end the following new subsection:
‘(k) Amounts Paid Under Medical Flexible Spending Arrangements-
‘(1) APPLICATION OF SUBSECTION (b) AND SECTION 106- For purposes of subsection (b) and section 106, a plan shall not fail to be treated as flexible spending arrangement solely because such plan, in addition to reimbursing expenses incurred for medical care (as defined in subsection (b)) during the plan year, distributes for the plan year all or a portion of the employee’s balance.
‘(2) LIMITATION- Paragraph (1) shall apply only in the case that the balance under such arrangement for a plan year is distributed after the close of the plan year to which the balance relates and not later than the end of the 7th month following the close of such plan year.
‘(3) TAX TREATMENT OF DISTRIBUTION- Any distribution to which paragraph (1) applies shall be treated as remuneration of the employee for employment for the taxable year in which it is distributed.
‘(4) FLEXIBLE SPENDING ARRANGEMENT- The term ‘flexible spending arrangement’ means a benefit program within the meaning of section 106(c)(2) (relating to long-term care benefits).’.
(b) Additional Deferred Compensation Exception- Paragraph (2) of section 125(d) of such Code (relating to deferred compensation under a cafeteria plan) is amended by inserting at the end the following new subparagraph:
‘(E) EXCEPTION FOR CERTAIN FLEXIBLE SPENDING ARRANGEMENTS- Subparagraph (A) shall not apply to a flexible spending arrangement (within the meaning of section 106(c)(2)) as a result of amounts being distributed to the covered employee in accordance with section 105(k).’.
(c) Conforming Amendment- Section 409A(d)(1) of such Code is amended by striking ‘and’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, and’, and by adding at the end the following:
‘(C) a flexible spending arrangement which is subject to section 105(k).’.
(d) Effective Date- The amendments made by this section shall apply to plan years beginning after December 31, 2012.
(e) Transition Rules- In the case of plan years that begin before the date of the enactment of this Act, in implementing the amendments made by this section a flexible spending arrangement may allow an individual to make a new election or to revise an existing election under such arrangement so long as such new or revised election is made within 90 days after the date of the enactment of this Act.
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Click here to track the bill on GovTrack.
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Tuesday, December 28th, 2010
Note: This should not be taken as tax or legal advice.
The new guidance modifies previous guidance to permit taxpayers to continue using FSA and HRA debit cards to purchase over-the-counter medications for which the taxpayer has a prescription. Effective after Jan. 15, 2011, in accordance with the new guidance, this use of debit cards must comply with procedures reflecting those that pharmacies currently follow when selling prescribed medicines or drugs.
The procedures include requirements that a prescription for the medication be presented to the pharmacy or the mail-order or web-based vendor that dispenses the medication and that proper records be retained.
In accordance with the Affordable Care Act, the cost of over-the-counter medicines or drugs can be reimbursed from a health FSA or HRA if a prescription has been obtained. The requirement to obtain a prescription does not apply to insulin.
Click here to read the FAQ.
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Friday, September 17th, 2010
Note: None of this should be taken as legal or tax advice.
The IRS recently released
Notice 2010-59 providing guidance on the Affordable Care Act provisions that changed the substantiation requirements for over-the-counter (OTC) drugs. These changes apply to
flexible spending accounts (FSAs),
health reimbursement arrangements (HRAs) and
health savings accounts (HSAs).
Beginning January 1, 2011, the following substantiation for OTC medicines and drugs will be required:
- a receipt that identifies the purchaser along with an RX number, or
- a receipt showing the item purchased along with a copy of the prescription.
A doctor's prescription is defined as a document that meets the legal requirements of a prescription in the state in which the medical expense is incurred. It also must be issued by an individual who is legally authorized to write a prescription in that state.
According to the Special Interest Group for IIAS Standards (SIGIS), approximately
one-third of the IIAS list will no longer be payable with an HRA debit card.
This further complicates an already confusing experience for HRA debit-card holders...
- If the card-holder visits an IIAS-qualified Pharmacy, then the card-holder can use the debit card to purchase prescription drugs only. The card-holder cannot use the debit card to purchase OTC medicines and drugs that require a prescription.
- If the card-holder visits a non IIAS merchant (e.g. doctor, hospital, non-IIAS-qualified pharmacy etc.), then the card-holder must manually submit documentation (e.g. receipt) to confirm the items purchased were eligible expenses.
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Saturday, September 4th, 2010
Note: None of this should not be taken as tax or legal advice. Yesterday, the IRS issued
Notice 2010-59 giving guidance on the new tax treatment of over-the-counter (OTC) drugs with regard to
HRAs,
FSAs, and
HSAs.
The notice clarified that:
- A doctor's prescription is required for over the counter drugs the same way prescriptions are required for prescription drugs (i.e. substantiation would include a receipt that identifies the purchaser along with an Rx number or a receipt showing the item purchased along with a copy of the prescription).
- The new prescription requirements do not apply to insulin, equipment (e.g. crutches), supplies (e.g. band aids), or diagnostic devices that are not medicines or drugs.
- The IRS will permit documents to be amended no later than June 30, 2011.
- Debit cards cannot be used at all providers and merchants to purchase over-the-counter medicines or drugs.
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Wednesday, August 4th, 2010
Effective September 23, 2010, the
health reform bill prohibits group health insurance plans from imposing
lifetime limits on
essential health benefits. However, plans may impose certain
annual limits on essential health benefits until January 1st, 2014. This new requirement applies to plans with effective dates of coverage on September 23, 2010 or later.
The annual limits restrictions phase in over the next few years as follows:
- Phase 1 (September 23, 2010 through September 22, 2011) - $750,000 maximum per participant
- Phase 2 (September 23, 2011 through September 22, 2012) - $1,000,000 maximum per participant
- Phase 3 (September 23, 2012 through December 31, 2013) - $2,000,000 maximum per participant
- Phase 4 (January 1st, 2014 Year 5 and beyond) - no annual limit allowed
Health Reimbursement Arrangements (HRAs)
Flexible Spending Accounts (FSAs)
Health Savings Accounts (HSAs)
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