Did PPACA change the tax that applies to distributions from HSAs for non-medical purposes?
Under current law, distributions from HSAs that are not used for qualified medical expenses are subject to an additional 10% tax, on top of ordinary income tax. Beginning January 1, 2011, this additional tax on distributions for non-medical purposes will increase to 20%. Are contributions to Health Flexible Spending Accounts (FSAs) now subject to a cap? Yes. Under current law, there is no limit on the amount that can be contributed to a Health FSA. Beginning January 1, 2013, salary reduction contributions to a Health FSA will be limited to $2,500 per year. In future years, this limit will be adjusted annually for inflation. Does this change impact Dependent Care FSAs? No. The change in PPACA to limit salary reduction contributions to HSAs will not impact Dependent Care FSAs. Contributions to Dependent Care FSAs will continue to be subject to a $5,000 per year limit. Can over-the-counter (OTC) drugs still be reimbursed from HSAs, FSAs and HRAs after PPACA? In 2003, the IRS issued guidan
