Sneezing at the Changes to Flexible Spending Accounts

 

How are you feeling? In any group of four people are you the one sneezing and wheezing? 2011 has been a particularly bad year for the estimated 60 million Americans with allergies, who collectively spend $3 billion on over-the-counter allergy medicines. The fall allergy season in the northern states was about 27 days longer than in previous years, and runny noses ran well into November. More bad news: Spring allergies will start in February. This is distressing news, but what has it to do with taxes?
 
Just this, reminds CPE Link instructor, Albert Grasso who teaches individual and corporate tax updates: “Beginning in 2011, only insulin and doctor-prescribed medicine qualify for tax- free reimbursement through flexible health spending accounts.” People with chronic illnesses, such as allergy sufferers, who depend on drugs that have gone from prescription-only to over-the-counter, are going to feel some added pain at tax time.
 
Then in 2013, the chronically ill and others who make maximum use of flex-spend accounts will be squeezed by another change. The maximum contribution will be lowered to $2,500 a year. (Heads up to taxpayers with kids who need braces!)
 
The thinking behind these changes goes like this: health coverage will be more affordable, so people won’t need flex-spend accounts so much. Then the additional tax revenue collected will help to fund further healthcare reform.
 
If the flex-spend changes--or other legislative and non-legislative developments in individual taxes--give your clients heartburn, remember, they’ll have to buy Tums with after-tax dollars.

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by Sue Anderson - Based on 30 years of experience in continuing education for accountants. Currently program director for online CPE provider, CPE Link. Formerly with the California CPA Education Foundation managing key operational areas including marketing, program development, and distance learning.

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