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IRS ISSUES GUIDANCE PERMITTING CONTINUED USE OF FSA AND HRA DEBIT CARDS AT NON-HEALTH CARE MERCHANTS IN 2007
On December 14, 2006, the Internal Revenue Service (IRS) released IRS Notice 2007-2 which provides additional guidance related to the use of FSA and HRA debit cards at merchants which do not have health care–related merchant category codes (MCC’s) in place. The guidance also addresses changes to the use of FSA and HRA debit cards in stores with drug store and pharmacy MCC’s starting in 2009.
In brief, the notice provides for the following:
• FSA and HRA participants can continue to use their debit cards at supermarkets, discount stores, grocery stores and wholesale clubs, as well as mail-order and web-based providers throughout 2007. However, effective January 1, 2008, debit cards will no longer work at these locations, unless the discount store, grocery store, etc. has an inventory information approval system in place to process such transactions.
• Effective January 1, 2009, debit cards will not be accepted at stores that have a drug store or pharmacy MCC unless these providers: a) have an inventory information approval system in place; or b) can demonstrate that 90% of their gross receipts during the prior tax year were related to qualified medical expenses.
A copy of IRS Notice 2007-2 is available at: http://www.irs.gov/pub/irs-drop/n-07-02.pdf
If you have any questions regarding this notice, please do not hesitate
to contact our office.