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January 4, 2007

Substantiation of Medical Expenses via Debit Cards

Transition relief has been provided in IRS Notice 2007-2 relating to substantiation of employer-provided medical expenses made through debit cards that are used in conjunction with flexible spending accounts or health reimbursement arrangements.  Certain items purchased with a debit card may not be identified as qualifying medical expenses under a plan if the vendor or entity does not utilize a merchant category code (MCC) system.  Thus, this guidance provides some relief to supermarkets, grocery stores, discount stores, and wholesale clubs that do not have such system in place.   The Notice requires these entities to implement a MCC system by January 1, 2008.


The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

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