Taxpayers May Not Deduct Imported Drugs
The cost of prescription drugs continues
to soar causing many to 'run for the Canadian border' when seeking a lower
cost-alternative for medications. The
idea is to reduce the cost of prescription drugs. However, when a participant purchases drugs in Canada, the
expense is not an allowable deduction as 213(d) medical expenses from a
Flexible Spending Account (FSA), according to a Internal Revenue Service (IRS)
opinion letter.
On March 14, 2005 the IRS wrote an information letter
that clarified that the cost of drugs imported from Canada by an individual is
not a FSA deductible expense. The
letter explains that under the IRS regulations, deductions are not allowed for
illegal operations, treatments or drugs.
 The
IRS also explained that the Food and Drug Administration (FDA) has taken the
position that it is illegal for individuals to import drugs from other
countries. Therefore, taxpayers may not
deduct the cost of drugs that they import from Canada or any other country.
The Medicare Modernization Act of 2003 permits the
government to grant waivers allowing individuals to obtain drugs from Canada,
legally; once it has been determined that this can be safe and cost-effective,
according to the IRS. However, the
Health & Human Services (HHS) has concluded that such a program would not
lead to significant savings for consumers and that it would be difficult and
costly to ensure the safety and effectiveness of drugs imported by individuals.
Infinisource clients and participants with either the
Flexible Spending Account (FSA), Health Reimbursement Arrangements (HRA) or
Health Savings Account (HSA) services would not be able to purchase
drugs outside of the U.S. and submit those as an allowable expense.
Information letters, such as this one, helps FSA plan
administrators evaluate claims and offer concrete answers to their
participants.
One of the greatest advantages of an FSA is the tax savings generated
and the increase in spendable income for participants. However, it's not just
the employees who save. By reducing payroll with pre-tax deductions, the
employer can also realize a significant tax savings.
It is in the employer's best interest to not only establish
an FSA program, but to educate employees on the benefits and use of the
program. At Infinisource, we not only administer your FSA program, but we help
you educate your staff and maximize participation. For more information on what
is available, along with the ability to see what employers and employees can
save with these accounts, visit our website www.benefitsolved.com or
call 800-779-6384.
###
In this Issue:
News Room sign-up
sheet | Archive |
