IRS Ruling Permits Pre-Tax Reimbursement For Non-Prescription Drugs

On Wednesday, the Treasury Department and the Internal Revenue Service announced new clarification of what expenses qualify for pre-tax reimbursement under health care flexible spending plans. Revenue Ruling 2003-102 allows such reimbursement for non-prescription drugs, including, but not limited to, aspirin and other pain relievers, antacids, allergy medicine, and cold medicine.

The ruling attempts to address some of the disparity that occurs when previously prescribed drugs become available as over-the-counter medicine. What once was covered by health plans at a reduced fee or co-pay can end up costing the user more when there is no potential for reimbursement.

"Since many prescription drugs have moved to the over-the-counter market, this action... makes paying for them a little bit easier to swallow," said Treasury Secretary John Snow.

While these non-prescription drugs are now eligible for exclusion from income, there is no change in the treatment of non-prescription drugs as a medical expense itemized deduction. Pursuant to Internal Revenue Code Section 213, the amount paid for a medicine or drug is allowed as a medical itemized deduction only if it is a prescribed drug or insulin.

Revenue Ruling 2003-102 also addresses the issue of tax treatment of the cost of dietary supplements that are merely beneficial to the good health of a taxpayer or a taxpayer's spouse or dependent. This expense does not qualify for the pre-tax reimbursement, nor does it qualify as a medical itemized deduction.

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