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Important tax changes for flex spending accounts | Business

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Important tax changes for flex spending accounts
Business, News
Important tax changes for flex spending accounts

TAMPA, Florida - It's a tax savings offered by 85 percent of large U.S. businesses, but only 27 percent of eligible employees take advantage of it.

Flexible spending accounts (FSA) can help employees save hundreds - or even thousands - of dollars a year by getting medical supplies tax-free when they wouldn't otherwise be deductable.

However, on Jan. 1, 2011, it will get harder to access the benefits for most over-the-counter purchases.  A prescription will be required for reimbursement for items such as aspirin, tylenol, and cough/cold relief.

"They're looking to close off a few loopholes in abuse," said Jerry Davies, CPA.  "People (were) writing off expenses when it clearly wasn't a medical necessity."

The change does not affect:

  • Insulin

  • Medical devices

  • Eye glasses

  • Contact lenses

  • Co-pays

  • Deductibles

Also of note, the change affects all purchases of non-exempt over-the-counter supplies after 12:01 a.m. on January 1st, even if your employer allows a two-and-a-half-month grace period to use your 2010 benefits.

For more information, you can read a Q&A or watch a video posted by the IRS.

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