In light of the Coronavirus pandemic, Congress, the Office of Personnel Management (OPM), and the IRS have made key changes affecting the use of tax-free funds that reside in tax preferred health spending accounts, including:
Freeing up funds in these accounts allows consumers to plan and pay for critical healthcare services/supplies and dependent care, using tax-free money. Here’s a list of the recently announced changes affecting HSAs, HRAs, FSAs, and MSAs –
1. Over the counter medications (OTC) – tax preferred spending account funds can be used to purchase over the counter drugs, without the requirement of a prescription from a healthcare provider. (Note: The Affordable Care Act (ACA) changed the rules pertaining to OTC drugs and required a prescription in order to use tax free funds to purchase such items.) Examples of commonly used OTC drugs include Tylenol, Advil, Pepto Bismol, Clariton, Omeprazole, etc. NOTE: Qualified expenses available for reimbursement through an HRA vary by plan. Check with your plan administrator or Human Resources department on the eligibility of OTC drugs.
2. Feminine Hygiene Products – tax-free spending account funds can be used to purchase menstrual care products. Importantly, the relaxation affecting the use of tax preferred funds to purchase OTC drugs and menstrual care products is retroactive to January 1st, 2020.
3. Deadline Extension for Prior Year HSA Contributions – The IRS issued extension affecting 2019 tax returns in turn, affects HSA contributions for 2019. HSA account holders are now permitted to make tax-deductible contributions to their HSA for 2019, up until the extended filing deadline date of July 15, 2020.
4. Dependent Care FSA (DCFSA) Allocation Changes Allowed – the Dependent Care aspect of FSAs allow eligible employees to set aside up to $5,000 on a pretax basis, to pay for certain child or elder care services. The OPM recently clarified that life qualifying events related to the Coronavirus pandemic such as a change in employment status, and/or a change in cost and/or availability of dependent care services allows one to suspend, modify, or initiate a dependent care election amount. In the case of the latter, a babysitter over the age of 19 can be reimbursed through the DCFSA, if they are the spouse, parent of a child, or anyone claimed as a dependent on the employee’s tax return.
5. HSA Qualified High Deductible Plan (HDHP) Change – HDHPs are now allowed to provide pre-deductible coverage for testing and treatment for COVID-19, without compromising the eligibility to contribute to an HSA. Additionally, telehealth services can be accessed on a pre-deductible basis on HDHPs through December 31, 2021.