November, 2003
- NON-PRESCRIPTION OVER-THE-COUNTER MEDICATIONS CAN NOW BE PAID WITH PRE-TAX DOLLARS THROUGH HEALTH CARE FLEXIBLE SPENDING ACCOUNTS.
On September 3, 2003, the Treasury Department and the Internal Revenue Service announced Revenue Ruling 2003-102 which allows reimbursement for non-prescription drugs by an employer sponsored health plan to be excluded from income. Health Care Flexible Spending Accounts allow individuals to reduce their taxable income by the amount of money set aside to cover medical expenses which they have incurred but which are not reimbursed by health insurance. The pre-tax money is used to reimburse the insurer for medical expenses that are not covered under an employee health insurance plan.
Prior to September 2003, over-the-counter drugs available without a prescription were not eligible expenses. As more drugs have become available without prescriptions, many health care providers have not covered the costs of such non-prescription drugs. As a result, the consumer incurs a greater expense when the cost of non-prescription drugs is greater than the co-pays for prescription drugs.
As a result of the Revenue Ruling, so long as non-prescription, over-the-counter drugs such as antacids, allergy medicines, pain relievers and cold medicines are used to "alleviate or treat personal injuries or sickness," they can be reimbursed in current Health Care FSA plans. Importantly, the cost of dietary supplements (e.g. vitamins and herbs that are merely beneficial to the employee's general health), cannot be excluded from income.
- BEGINNING IN JANUARY OF 2004, MORE BUSINESSES CAN TAKE ADVANTAGE OF THE STANDARD MILEAGE RATE.
In October, the Internal Revenue Service released the optional standard mileage rates to use for 2004 in computing the deducible costs of operating an automobile for business, charitable, medical or moving expense purposes.
The Internal Revenue Service also announced that, starting in 2003, taxpayers who use no more than four vehicles at the same time for business purposes may use the standard mileage rate. The law currently states that those using more than one vehicle at a time cannot use the standard rate at all, leaving them to track the actual expenses for each vehicle.
A taxpayer may not use the standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS), claiming a Section 179 deduction for that vehicle, or for any vehicle used for hire.
Beginning January 1, 2004, the standard mileage rates for the use of a car (which includes vans, pickups, or panel trucks) will be 37.5 cents a mile for all business miles driven (up from 36 cents a mile in 2003); 14 cents a mile when computing deductible medical or moving expenses (up from 12 cents a mile in 2003); and 14 cents a mile when donating services to charitable organizations.
Jennifer A. Hemming