IRS Relaxes Requirements for Use of FSA and HRA Debit Cards

​For employers with flexible spending accounts (FSAs) or health reimbursement accounts (HRAs), the IRS has revised its regulations to allow the continued use of debit cards for prescribed, over-the-counter medications after January 15, 2011.

The following conditions must be met, however, to use debit cards for these expenses:
  • The employee must present the prescription to the pharmacist prior to the purchase of the over-the-counter medication. The prescription must be numbered.
  • The pharmacy must retain a record of the transaction, including the prescription number, name of purchaser (or name of the person the prescription is for), the date, and amount of the purchase.
  • The FSA vendor may request to inspect the transaction documents.
  • The debit card system will not accept charges for an over-the-counter drug or medicine unless a prescription number has been assigned.
  • The debit card system must meet existing IRS requirements that are intended to limit use of debit cards to only tax-qualified medical care expenses.
  • The employee must attest that he or she will limit the card’s use to tax-qualifying expenses.
Debit cards may still be used to purchase or pay medical expenses such as copayments and to purchase other health care items that are not medicines or drugs, such as eyeglasses, crutches, blood pressure monitors, etc. A debit card may be used to purchase these items at stores that sell non-health care items such as a grocery store; however, the store must operate under health care-related merchant codes that allow for clear delineation between qualifying and non-qualifying medical care expenses.

Employers should discuss these requirements with their FSA and HRA vendors to ensure compliance with the new IRS regulations.