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An Often-Overlooked Flexible Spending Account Strategy
Flexible spending accounts are an employee benefit where money can be withheld from a paycheck, pretax, to be used to pay for permitted medical expenses. There is a benefit available to FSA participants that is often overlooked: the payment for vitamins and supplements taken for a specific medical condition.
By J. Gregory Kashella, CPA
One benefit that many employers make available to their employees is the flexible spending account (FSA). With an FSA, an employee can designate an amount of money (up to IRS limits) to be withheld from his or her paycheck, pretax, to be used to pay for any medical expenses permitted under the IRS Code for FSAs.
There is a benefit available to FSA participants that is often overlooked: the payment for vitamins and supplements taken for a specific medical condition. In talking with physicians, I have been told that patients seldom avail themselves of this benefit.
The key is when these supplements address a specific condition. Vitamins for general health do not qualify for FSA payment. For example, if a doctor suggests a multivitamin for a patient to maintain his or her health, this vitamin does not qualify. However, if a doctor prescribes an over-the-counter vitamin D for a patient to treat a vitamin D deficiency, this qualifies for FSA payment if specific requirements are met.
Use of FSA payments for over-the-counter vitamins and supplements for a specific medical condition requires a prescription from the doctor that is written in a particular way to satisfy both the IRS and the FSA administrator. If a doctor writes a prescription for the over-the-counter vitamin in the same way as a prescription drug, this will not work for an FSA. To be allowable, the prescription must contain the following information (in addition to the patient and doctor information):
Date of the Prescription: Jan. 15, 2025
What is being prescribed: Vitamin D XXXXX Units
Why it is being prescribed (diagnosis): Medically necessary for the treatment of vitamin D deficiency
Time period being prescribed: For the year 2025 (Since refills are not required to be specified for over-the-counter items, this wording ensures that all purchases during the year are covered. (See further details on this below.)
Here are a few notes to expand on the example above:
- The prescription can be either on a prescription pad or the doctor’s letterhead. Several FSA guidelines mention the abbreviation LMN. This is a Letter of Medical Necessity associated with over-the-counter and certain other items permitted by the FSA. The LMN is essentially a prescription.
- The date: Some FSA administrators will not permit payment of the item if it is purchased before the date of the prescription, even though the required wording includes “for the year 2025.” Say the item is purchased on Jan. 8 but the prescription is dated Jan. 15 (as illustrated above), the FSA administrator may not approve payment. Be sure to obtain the prescription before making the purchase.
- FSA administrators require the words “medically necessary” in the prescription. This ties in with the LMN mentioned above.
- Why it is being prescribed (diagnosis): Physicians are used to using ICD Codes (International Classification of Diseases) for the diagnosis of conditions and writing these codes on prescriptions and insurance billing submissions. Since many FSA administrators are not medical insurance providers and do not have ICD codebooks available, the physician needs to write out the name of the condition so the administrator knows the specific condition.
Without going into the mechanics of the itemized medical deductions on Schedule A of Form 1040, for those who can itemize medical deductions and have an FSA, it may be more efficient to pay for the over-the-counter items using the FSA and pay for prescriptions, doctor visits, and medical insurance deductibles out of pocket. This strategy maximizes the medical deductions on the tax return and gets the maximum reimbursement for medical expenses that are not deductible.
J. Gregory Kashella, CPA, is an accountant/financial statement technical review manager with Smoker, Smith & Associates PC in Hummelstown, Pa. He can be reached at gkashella@smokersmith.com.
Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.
