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Employers may reimburse employees for the cost of nonprescription, over-the-counter medications through flexible spending accounts under a new ruling by the Internal Revenue Service. Revenue Ruling 2003-102 provides that such reimbursements will be eligible for tax-free treatment if properly substantiated.

In announcing the ruling, Treasury Secretary John Snow said, "Flexible Spending Accounts are an important tool in helping people meet their health care costs. Since many prescription drugs have moved to the over-the-counter market, this action today makes paying for them a little bit easier to swallow."

The ruling explains that the statutory exclusion for reimbursements of employee health reimbursements is broader than the limitations for the itemized deduction for medical expenses, which does not include nonprescription drugs.

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