Last week, Senator Kay Bailey Hutchison (R-TX) and Representative Erik Paulsen (R-MN) reintroduced the "Patients' Freedom to Choose Act." This legislation would repeal the health reform provision that requires individuals to have a prescription for over-the-counter (OTC) medicines in order to receive reimbursement through a Flexible Spending Account (FSA), Health Reimbursement Arrangement (HRA) or Health Savings Account (HSA). It would also repeal the $2,500 FSA cap set to become effective on January 1, 2013.

We urge you to act immediately. Please contact your legislators in Washington and ask them to actively endorse this repeal. We encourage you to send a letter to your representatives and urge them to sign on immediately.

To locate contact information for your members of the House of Representatives, click here.

To locate contact information for your Senators, click here.

For more information, go to savemyflexplan.org.

Publication 15-B. The 2011 version of Publication 15-B (Employer's Tax Guide to Fringe Benefits) contains information on the employment tax treatment of various benefits. Click here to view the updated Publication 15-B.

Publication 502. The updated version of Medical and Dental Expenses describes what medical expenses are deductible by taxpayers on their 2010 federal income tax returns. It holds substantive changes including updates to the COBRA premium assistance subsidy and the Health Coverage Tax Credit (HCTC). Click here to view the updated copy of Publication 502.

Publication 503. Publication 503 (Child and Dependent Care Expenses) assists employees in preparing 2010 Income Tax Returns. Click here to view the updated Publication 503.

Publication 521. Publication 521 assists employees in preparing 2010 tax returns. This publication explains what types of work-related moving expenses may be deductible on an individual's federal income tax return and who can deduct those expenses. Click here to view the updated Publication 521.

Publication 969. Publication 969 provides basic information about HSAs, HRAs, health FSAs, Archer MSAs, and Medicare Advantage MSAs, including brief descriptions of benefits, eligibility requirements, contribution limits, and distribution issues. Click here to view the updated Publication 969.

Publication 4894. This new publication summarizes the key changes enacted as part of health care reform, with topics including the prescription requirement for OTC drugs and the small business health care tax credit. Click here to view the new Publication 4894.

Form 8889 and Instructions. HSA holders must attach this form to their 1040s to report HSA activity. HSA deductions may be calculated via this form. Click here to view Form 8889 and click here to view the instructions.

The IRS has released guidance pertaining to the use of health debit cards for the purchase of OTC medicines after Jan. 1, 2011. As you know, as of Jan. 1, 2011, all OTC medications will require a prescription in order to be eligible for reimbursement from FSA, HRA, HSA or Archer MSA accounts. This has not changed. However, in the prior guidance, it was stated that health debit cards could not be used to purchase OTC items, with or without a prescription.

IRS notice 2011-5 allows for the use of debit cards for the purchase of qualified OTC items accompanied by a prescription, up to and beyond Jan. 15, provided certain circumstances are met.

To read IRS notice 2011-5, click here.

The IRS has delayed the effective date of Revenue Ruling 2006-57, which provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringes under sections 132(a)(5) and (f) of the Code. This guidance will provide relief to mass transit providers that have been unable to update their systems in order to comply with the Revenue Ruling guidelines prior to the current effective date of Jan. 1, 2011. This will allow certain transit systems additional time to adapt their technology and achieve compatibility requirements. The effective date is further delayed until Jan. 1, 2012.

Click here to read the formal notice.

Click here to read the guidance.

Click here for a press release.

Click here for Q&As.

The Federal Trade Commission has delayed enforcement of the Red Flags Rule through December 31, 2010. The rule became effective January 1, 2008 with full compliance for all covered entities originally required by November 1, 2008. The FTC has delayed enforcement several times, the latest delay being June 1, 2008.

The Red Flags Rule was developed under the Fair and Accurate Credit Transactions Act, in which Congress directed the FTC and other agencies to develop regulations requiring creditors and financial institutions to address the risk of identity theft. The rule requires all such entities to develop and implement identity theft prevention programs. 

Click here for more information.

These changes have several implications for users of the mySourceCard and HSAToday Card. Because OTC medicines are no longer eligible for reimbursement without a prescription, they will not be listed in the IIAS eligible item list and therefore cannot be purchased with the card at IIAS merchants. In the case of a prescription OTC purchase, participants will need to submit those with a claim form and be reimbursed. For a summary of the changes, click here (see page 59, section 9003.) 

To read IRS Publication 502 which defines a qualified medical expense, click here.

The IRS Notice 2006-69 allows for auto-adjudication for an additional category of claims under the merchant based inventory information approval system (IIAS). As described below, under such an arrangement, a real-time determination is made by the merchant at the point of sale of the amount of eligible medical expenses by comparing the selected items to a pre-approved list. No additional substantiation is required if a merchant compares the item or items to a pre-determined list maintained by the merchant of items sold by the merchant that constitute Code Section 213(d) expenses and restricts use of the Card only to those items that fall on that list. However, as noted below, the employer (or its TPA) must have access to claims level detail provided at the time of the transaction or a later date.

The IIAS system approves the use of the Card only for eligible medical care expenses; when a transaction is not approved in full, the employee must tender additional amounts, resulting in a split-tender transaction.

Click here to read more.

Employers are always looking for new ways to motivate their employees. Many employers are looking at gift cards as an additional option for employee incentives. This trend is growing rapidly.

Another trend is the use of prepaid debit cards for payment of wages to employees. Many employers have used electronic payments (direct deposit) for years for meeting their payroll needs. Unfortunately many employees do not have bank accounts and so direct deposit was not a viable method of payment for all. Now many employers are offering the option of payroll cards. Prepaid payroll cards create cost savings by reducing lost or stolen check replacements, bank processing and handling fees, check fraud, and check printing costs.

As electronic payments takes place on a national scale in employee reward programs and as a method for delivering wages, we have also seen electronic payment cards used as a method of payment from various employee health care accounts.

With the migration towards consumer driven health care and the effort to make consumers more accountable for their health care choices, we have seen the introduction of the flexible spending accounts (FSAs), health reimbursement arrangements (HRAs) and health savings accounts (HSAs). The benefit to employees of participation in one or more of these flex accounts is tax savings.  

The adoption of electronic payment cards for use with various consumer driven health care accounts to expedite claims processing has been proven to show a marked increase in participation by employees. With the addition of Information Inventory Approval Systems (IIAS) which will reduce the amount of paper claims required for substantiation of expenses, the use of the health debit cards is likely to increase. Participant’s appreciate having their claims paid sooner (at the point-of-sale) rather than later (days or weeks after the expense was incurred). Increase of participation in consumer driven health care accounts results in a greater tax savings for employer.

For more information on how DataPath’s electronic payment cards can benefit you, please contact Sales at sales@dpath.com