With all the new health care legislation passed this year, many are wondering how flexible spending accounts will be affected. According to AlanHaft.com, the new health care reform legislation impacts flexible FSAs in the way over-the-counter medications are handled and increases taxes on nonqualified distributions.

Beginning in 2011, FSAs cannot make reimbursements for the cost of over-the-counter medications, such as nonprescription pain relievers, cold medicines, antacids and allergy medications. However, insulin and over-the-counter medications prescribed by a physician will still be reimbursable on a tax-favored basis by these plans. You may want to stock up on your over-the-counter drugs to take advantage of the available reimbursement before the end of this year.

The IRS also resolved uncertainty involving the new over-the-counter restriction on what are known as "grace period" FSAs. Under rules the IRS issued in 2005, unused contributions made to FSAs in the current year can be rolled over to pay for expenses incurred during the first two and a half months in the following year. The new IRS rules say over-the-counter reimbursements are banned for grace-period FSAs and FSAs without grace periods effective January 1, 2011. Congress imposed the new limits to raise revenue to help pay for other provisions in the reform law that expand coverage, such as new federal insurance premium subsidies for the lower-income uninsured, beginning in 2014.