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The IRS Issues Additional Guidance on Use of FSA/HRA Debit Cards to Purchase OTC Drugs

[IRS Notice 2011-5 (Dec. 23, 2010)]

The IRS has issued a notice that provides additional guidance on the use of health FSA and HRA debit cards to purcahse over-the-counter medicines and drugs (OTC drugs). The notice modifies IRS Notice 2010-59 and allows the use of debit cards to purchase prescribed  OTC drugs after January 1, 2011 if certain requirements are met.

When purchasing OTC drugs at a Drug Stores/Pharmacies: After January 1, 2011, health FSA and HRA debit cards may be used to purchase OTC drugs at drug stores and pharmacies, non-health care merchants that have pharmacies inside and mail-order or web-based vendors that sell prescription drugs if the following requirements are met:

1) prior to purchase, a prescription (as defined in prior guidance) is presented to the pharmacist, the OTC drug is dispensed by the pharmacist in accordance with applicable legal requirements and an Rx number is assigned;

2) the pharmacy or other vendor retains a record of the Rx number, the name of the purchaser or patient and the date and amount of the purchase in a manner that meets IRS recordkeeping requirements for card programs;

3) the records are available to the employer or its agent upon request (please note this is the way all OTC items have been handled by IIAS in the past and this is not a new development);

4) the card system will not accept a charge for an OTC drug unless an Rx number has been assigned;

5) the requirements of other IRS guidance regarding card programs are satisifed.

If these requirements are all met, the purchase will be considered fully substantiated at the point of sale. Please also note that stores have until January 15, 2011 to comply with the requirements of Health Care Reform. Some stores will fall into compliance prior to January 15, 2011 which will affect how your card works at these vendors.