IRS Offers New Guidance on FSA and HRA Debit Cards

On December 28, 2010, the Internal Revenue Service issued new guidance allowing the continued use of health FSA and HRA debit cards for the purchase of prescribed over-the-counter medicines and drugs.

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 January 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 requirements to obtain a prescription does not apply to insulin.

The prescription requirement applies to purchases made on or after January 1, 2011, and not to purcahses made in 2010 even if reimbursed after December 31, 2010. Because the requirement applies only to over-the-counter medication, it does not apply to other health care expenses such as medical devices, eye glasses, or contact lenses.

The IRS website contains further details on health FSA and HRA debit card purchases, including purchases from health care providers other than pharmacies and mail order and web-based vendors. For more information, please see the following links.


IRS Notice 2011-5

Frequently Asked Questions