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Hey there, business owners and healthcare enthusiasts! There's some fantastic news you need to know about Over-the-Counter (OTC) drugs and how they relate to health reimbursement arrangements (HRAs), medical savings accounts (MSAs), and flexible spending accounts (FSAs). Let's dive into the exciting details of Update 105-HRAs!
A Welcome Change: CARES Act to the Rescue
Thanks to the CARES Act, a significant change has occurred that impacts the way HRAs, FSAs, and MSAs handle OTC drugs. This change also includes a new deduction for menstrual care products. The best part? These changes apply to amounts paid after December 31, 2019. Yes, you read that right – it's retroactive!
A Victory for Business
If you're an individual taxpayer who itemizes your medical tax deductions, you may know that you can't deduct OTC products. You can only deduct prescribed drugs. But here's where the business wins big.
Starting in 2020, thanks to CARES Act Section 3702, HRAs, FSAs, health savings accounts, and Archer MSAs can now reimburse over-the-counter drugs and medicines used to treat illnesses or injuries. This change includes menstrual care products too.
IRS Approves Retroactive Reimbursement
IRS Notice 2021-15 has made an exciting announcement that you can change your existing plans to offer reimbursements for menstrual care products and OTC drugs without needing prescriptions. This change is valid for any period starting on or after January 1, 2020.
You can even make these changes if there are inconsistencies between the IRS notice and the tax code and IRS regulations.
Key Takeaways to Consider This Over-The-Counter Change
- From January 1, 2020, your Section 105-HRA, QSEHRA, ICHRA, Archer MSA, and FSA can reimburse over-the-counter drugs and menstrual products.
- Thanks to the CARES Act and IRS Notice 2021-15, only the HRA and the other business plans mentioned above can deduct (through reimbursement to employees) the OTC drugs and menstrual products.
- Individuals need prescriptions to activate possible tax deductions for these items.
- Even if the plan did not cover the expense when it happened, you can still reimburse your employees for 2020 or 2021 drugs and products, according to Notice 2021-15.
What This Means for Your Business
These updates are a big win for businesses, employees, and individuals alike. If you are a business owner who manages HRAs, MSAs, or FSAs, now is the time to review your current plans and make the necessary adjustments.
You may want to consider reimbursing your employees for 2020 or 2021 drugs and products and amend your tax returns for the new expenses.
So, there you have it! Thanks to Update 105-HRAs, business wins in the area of over-the-counter drugs are now a reality. Remember to consult with a tax professional to understand how these changes apply to your specific situation and to ensure you are following the latest IRS rules.
With these exciting changes in place, business owners can breathe a sigh of relief, knowing that healthcare just got a little more flexible. If you have any questions or need assistance, feel free to reach out! We're here to help you navigate the exciting world of HRAs, MSAs, and FSAs, and over-the-counter drugs. Happy healthcare planning!
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