It’s "spend it or lose it" time for millions of Americans who set aside funds for flexible spending accounts. Any funds left in that account on December 31 will disappear faster than booze at an office holiday party.
That’s because flexible spending accounts, which allow taxpayers to use pretax dollars for out-of-pocket medical expenses, have a "use it or lose it" provision that requires them to be used up by the end of the year. It’s the law.
The Important Rules Behind Flexible Spending Accounts
While flexible spending account holders can spend the funds on medical expenses not covered by insurance, like laser eye surgery, dental expenses, psychiatric care, vaccinations, immunizations and dermatological services, etc., they can also spend them on certain over-the-counter-medications, thanks to a September 2003 announcement from the Treasury Department and the IRS. It said:
"Today, the Treasury Department and the IRS announced over-the-counter drugs can be paid for with pre-tax dollars through health care flexible spending accounts. Treasury and IRS issued guidance clarifying that reimbursements for nonprescription drugs by an employer health plan are excluded from income. Thus, reimbursements by health flexible spending arrangements (FSAs) and other employer health plans for the cost of over-the-counter drugs available without prescription are not subject to tax if properly substantiated by the employee."
Flexible Spending Account Benefits Example: Drugstore.com
As it says on its site, "Drugstore.com offers some 2,000 OTC items deemed likely to be eligible at its ‘FSA Store.’ Shoppers can print a detailed receipt to submit to their FSA administrator for reimbursement, and all purchases made throughout the year on the site can be consolidated in a single FSA receipt."
