Are Cotton Balls an HSA Eligible Expense?

Health Savings Accounts (HSAs) offer a tax-advantaged way to save and pay for qualified medical expenses. These accounts are available to individuals enrolled in high-deductible health plans and provide a triple tax benefit: contributions are tax-deductible or pre-tax, earnings grow tax-free, and withdrawals for eligible medical costs are also tax-free. Understanding what constitutes a qualified medical expense is essential for maximizing the benefits of an HSA. The Internal Revenue Service (IRS) provides detailed guidance on these eligible expenses.

Understanding HSA Eligibility

The IRS defines a qualified medical expense as costs paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Common examples include doctor visits, prescription medications, dental care, and vision care. The expense must be primarily for medical care and not merely beneficial to general health or for cosmetic purposes.

Expenses generally not considered qualified include cosmetic procedures, health club dues, or over-the-counter drugs unless specifically allowed or prescribed. However, the Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded the definition of qualified medical expenses to include over-the-counter medications and menstrual care products without a prescription.

Cotton Balls and Other Common Supplies

The eligibility of common household items like cotton balls depends directly on their intended use. If cotton balls are used for general hygiene, cosmetic purposes, or craft projects, they are not considered qualified medical expenses. However, if they are used specifically for medical purposes, such as applying medication, cleaning a wound, or as part of a medical procedure, they may be eligible. In cases where the medical necessity of an item is not immediately clear, a Letter of Medical Necessity from a healthcare professional can help substantiate the claim.

This principle of intended use also applies to other common medical supplies. Bandages, for instance, are widely recognized as HSA-eligible because they are used for wound care, protection, and to promote healing. Similarly, gauze is eligible when used as a dressing for wounds, to control bleeding, or to maintain a sterile environment. Rubbing alcohol is also eligible as an over-the-counter antiseptic, particularly when used for sterilizing skin before injections or cleaning medical equipment.

Maintaining Proper Records

Maintaining accurate records is an important responsibility for HSA account holders. The IRS requires individuals to keep sufficient documentation to prove that HSA distributions were used exclusively for qualified medical expenses. This documentation is important in the event of an IRS audit. Without proper records, distributions used for non-qualified expenses may be subject to income tax and an additional 20% penalty.

Relevant records to retain include itemized receipts clearly showing the product or service purchased, the date of the transaction, and the amount paid. For services, an Explanation of Benefits (EOB) from your health insurer or a medical diagnosis letter from a physician can also serve as supporting documentation, especially for items whose medical necessity might be questioned. While HSA providers may offer tools for tracking expenses, the ultimate responsibility for record-keeping rests with the account holder. It is advisable to keep these records for at least three to seven years, aligning with general tax record retention guidelines.