Income Tax Issues for Families

If you have a medical spending account through your employer, you may never have realized that you also can use it to pay for drugs like Tylenol or Sudafed. According to Andrew S. Kenward, CPA, in White Plains, New York, the IRS has ruled that employer reimbursements of employee payments for over-the-counter medicines are tax free to the employee. "Therefore, employees can pay for these non-prescription drugs with pre-tax dollars through healthcare flexible spending accounts (FSAs)," Kenward explains. He also adds, "The IRS said that although individuals are not taxed on an FSA reimbursement of non-prescription drugs, if you don't get reimbursed for them, you can't deduct them yourself as medical expenses. This is because deductible medical expenses include only prescription drugs plus insulin."