With all the new health care legislation passed this year, manyare wondering how flexible spending accounts will be affected. According toAlanHaft.com, the new health care reform legislationimpacts flexible FSAs in the way over-the-counter medications arehandled and increases taxes on nonqualified distributions.

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

The IRS also resolved uncertainty involving the newover-the-counter restriction on what are known as "grace period"FSAs. Under rules the IRS issued in 2005, unused contributions madeto FSAs in the current year can be rolled over to pay for expensesincurred during the first two and a half months in the followingyear. The new IRS rules say over-the-counter reimbursements arebanned for grace-period FSAs and FSAs without grace periodseffective January 1, 2011. Congress imposed the new limits to raiserevenue to help pay for other provisions in the reform law thatexpand coverage, such as new federal insurance premium subsidiesfor the lower-income uninsured, beginning in 2014.

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