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Small Business Employee Benefits and HR Blog

IRS Clarifies Over-the-Counter (OTC) Treatment Under Health Reform

September 4, 2010

Yesterday, the IRS issued Notice 2010-59 giving guidance on the new tax treatment of over-the-counter (OTC) drugs with regard to HRAs, FSAs, and HSAs.

The notice clarified that:

  1. A doctor's prescription is required for over the counter drugs the same way prescriptions are required for prescription drugs (i.e. substantiation would include a receipt that identifies the purchaser along with an Rx number or a receipt showing the item purchased along with a copy of the prescription).
  2. The new prescription requirements do not apply to insulin, equipment (e.g. crutches), supplies (e.g. band aids), or diagnostic devices  that are not medicines or drugs.
  3. The IRS will permit documents to be amended no later than June 30, 2011.
  4. Debit cards cannot be used at all providers and merchants to purchase over-the-counter medicines or drugs. 

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