Over-the-Counter Medicines and Drugs Q&A
Q. Can I be reimbursed tax-free for over-the-counter drugs (OTC) through the NOW Plan?
A. On September 3, 2003, the Treasury Department and IRS (Revenue Ruling 2003-102) declared that employer-sponsored health plans can reimburse the tax savings on expenses for medicines available without a prescription, provided the expense is properly substantiated (e.g. receipt) and that the medicines are for treating personal injuries or sickness.
Q. What do I need to be reimbursed for an OTC drug claim?
A. Regardless of the cost of the OTC drug, you need to complete an expense summary form that details who the expense is for (employee, spouse, dependent), a receipt for your OTC drug purchase that identifies either the name (i.e. “Robitussin”) or type (i.e. “cold medicine”) of the OTC drug, the price paid, and date of purchase was made and evidence that it was prescribed. The receipt must come from a third party such as a store or pharmacy. Other documentation, such as a box-top, may be needed if the receipt does not identify either of the above. Note that writing the name of the drug or type is not enough to substantiate a claim. Note also that the drug must be legal and procured legally. For example, it is currently illegal to import drugs from Canada or Mexico and submit them as OTC through the plan. The prescription must have been issued by a licensed medical provider.
Q. Can I claim a tax deduction for medical devices even if I do not have a prescription?
A. The new prescription requirement applies only to medicines and drugs and not to
other items that qualify as medical expenses under section 213(d)(1) of the Code.
Q. Are items such as medicated shampoos, lotions, and sunscreens eligible for reimbursement.
A. For items like these that can be used for both medical and non-medical reasons, you would be required to provide a signed statement from your doctor stating that the product is used to treat a specific medical condition.
Q. Are dietary supplements like vitamins and dietary supplements I purchase to stay healthy reimbursable?
A. No. These are not reimbursable.
Q. Can I buy multiple amounts of the same OTC drugs so I can store some for later use?
A. No. The plan will reimburse you the tax savings for a reasonable amount of expected buying; say two or three bottles of Ibuprofen but not for stockpiling the OTC drugs.
Q. Can I claim a deduction for working out in a gym to improve my health?
A. Only if your doctor specifically prescribes the work out regime because of a health problem. Unfortunately, preventative programs do not qualify for tax deduction.
Q. Can I claim weight loss products or food and/or a weight loss program?
A. Only if it has been specifically prescribed by a medical doctor because your weight is causing a specific medical problem. This has to be more than just your doctor saying that you should lose weight.
Q. Do vitamins or workout equipment qualify? I am improving my health.
A. Again, preventative actions do not qualify. Nor do health foods, supplements, or any kind of workout equipment.
Q. I buy Q-tips, cotton balls, and wipes for my baby to clean and maintain his health. Do they qualify as a deduction?
A. Items used in the normal course of cleaning or maintaining your health or those of your children do not qualify.
Q. How about massage treatments?
A. Only if it is done by a licensed physical therapist or chiropractor for a medical condition.
Q. My spouse does not work but is going to school; while they are in school, our children are at day care. Can I claim day care expenses?
A. Yes, with the following limitations. If you have one child in day care, you cannot claim more than $250 per month. If two or more children, you can claim up to $500 in a month but cannot claim more than $5000 per year.
Q. If my spouse works part-time and we have a care provider come in to take care of my father, who suffers from Alzheimer’s, does that qualify us for dependent care?
A. You can claim dependent care for the time that your spouse is gainfully employed but not for anytime spent outside of work and traveling to and from work.
Q. I use an acupuncturist. Does that qualify as a deduction?
A. Yes, as long as they are a state-licensed acupuncturist.
Q. Can I save my receipts and send them in at the end of the year?
A. No. Receipts must be submitted no later than 90 days after the employee incurs the expense. There are very few exceptions, such as when the receipt is delayed by the provider, usually because of insurance claims and balance owed by the employee is to be determined; these are reviewed on a case-by-case basis.
Q. How do these deductions affect my social security and my ability to obtain a loan based on my earnings?
A. As you are paying taxes (including social security) on a reduced amount, you would have slightly less credit for social security contributions. As to loans, your tax statement from your employer will report your gross earnings, before any deductions, which you would use for a loan. Also shown on your tax statement will be your net taxable earnings, which is after deductions. Your net taxable earning is what the IRS will use for tax purposes.
Q. Am I more likely to be audited by the IRS because I am using this program?
A. No. Remember the IRS, through an action of Congress, created this program for employees just like you. However, it is important that all claims meet the IRS standard. Part of our job is to screen claims to see that they do qualify. Part of our challenge is to interpret your receipts and claims. That is why it is very important that you be clear as to what you’re claiming and that the receipt is readable. It is possible that something could get through that shouldn’t, so remember that, ultimately, you are the one responsible if the IRS audits you. Don’t claim anything that you would have a problem with in an audit.