News
Debit Cards
IRS Issues Debit Card Guidance
On May 6, 2003, the Internal Revenue Service (IRS) issued guidance in the form of Revenue Ruling 2003-43 dealing with the use of debit/credit cards for the reimbursement of medical expenses through medical Flexible Spending Accounts (FSA) and Health Reimbursement Accounts (HRA).
The IRS guidance, which is effective for plan years beginning after December 31, 2003, mandates the following:
- The employee must certify both pre and post-enrollment, that the card will be used only for eligible medical expenses and that such expenses are not reimbursable (and will not be reimbursed) from any other source.
- Eligible debit/credit card expenses must originate only with certain health-related service providers.
- Every claim must be adjudicated and substantiated. Adjudication of claims by "sampling" is prohibited.
- Plan documents must contain approved correction procedures for identified impermissible expenses.
- Payments made to certain medical service providers in excess of $600 (per taxable year) through a debit/credit card are reportable by the employer on Form 1099-MISC under Internal Revenue Code § 6041.
Hirsch Financial Services, Inc. will continue to monitor the regulatory environment, keep its clients abreast of any changes and revise its policies and procedures to take advantage of any future guidance.
NOTE: On December 18, 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003. This act contains an exception to the 1099 filing requirement for Health FSA and HRA expenses paid via a debit card.