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OTC meds eligible for pre-tax fund

By Kate Martin
The Daily Times-Call

For the first time, the IRS has approved the reimbursement for over-the-counter medications by Cafeteria Plans. The decision, made in early September, is retroactive to April 1.

The benefit will apply to all medications available to consumers without a prescription.

“These types of things — pain relievers, antacids — how many people use those? Probably everybody,” said Claudia Maciuk of Volk Associates Insurance. “It’s nice that they will be reimbursed.”

Included in the list of approved reimbursable medications are bandages, nasal spray, eye drops, cold and allergy medications, and mosquito repellant because of the threat of West Nile virus in Colorado.

Cafeteria Plans allow an employee to use pre-tax money to pay for medical care for themselves and their dependants — medical care not covered by their insurance. Co-pays, child care and dental and vision care have been covered in the past; however, the eligibility of over-the-counter medication has been unclear.

IRS Code Section 213 says that only prescription drugs may be itemized on tax returns. Section 105 allows for pre-tax deduction for medical expenses, but the document does not specify whether the medical expenses must be prescribed by a physician. The IRS clarified the two, seemingly conflicting sections by updating Publication 502 for the Sept. 3 decision.

“(The decision) surprised all of us, because the IRS has said in the past that over-the-counter medications were ineligible,” said Mitchell Chesney, CEO with the Denver Reserve, a record keeper for Cafeteria Plans and Flexible Spending Accounts.

“For example, last year some allergy medications went over the counter that were prescription the year before.”

Claritin, a popular allergy medication, was approved for over-the-counter sale in Nov. 2002, when it was previously available by prescription only. With the recent clarification of the IRS Code, Claritin and other over-the-counter medications will be reimbursable.

“Last year, you could pay with your Cafeteria Plan. When it went over the counter, you couldn’t pay for it with pre-tax dollars,” Chesney said. “Now you can.”

Kate Martin can be reached at 303-776-2244, Ext. 389, or by e-mail at kmartin@times-call.com.