Are Cough Drops an FSA-Eligible Expense?

A Flexible Spending Account (FSA) is an employer-sponsored benefit that allows individuals to set aside pre-tax money from their paycheck. This tax-advantaged arrangement helps cover qualified out-of-pocket healthcare expenses for the account holder, their spouse, and dependents. Many people wonder about the eligibility of everyday items, such as cough drops, for FSA reimbursement.

General Eligibility for Over-the-Counter Items

Flexible Spending Accounts generally cover expenses for “medical care” as defined by Internal Revenue Code Section 213. This definition includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Prior to 2020, many over-the-counter (OTC) medications required a doctor’s prescription to be eligible for FSA reimbursement. This prescription requirement, established by the Affordable Care Act in 2010, made it more challenging to use FSA funds for common health products.

A significant change occurred with the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. This legislation permanently removed the prescription requirement for most OTC medications and products, making them directly eligible for FSA and Health Savings Account (HSA) use. Common examples of now-eligible OTC items include pain relievers, allergy medications, cold and flu remedies, and various first-aid supplies. While many OTC items are now eligible without a prescription, some products with both medical and general health uses, like certain vitamins or supplements, may still require a Letter of Medical Necessity (LMN) to qualify.

The Prescription Requirement for Cough Drops

Cough drops are considered an eligible medical expense under IRS guidelines. Their primary function is to provide relief from symptoms associated with colds, coughs, or throat irritation. Medicated cough drops, often containing active ingredients like menthol or eucalyptus, are recognized for their therapeutic effect on these symptoms.

Effective January 1, 2020, the previous requirement for a doctor’s prescription for OTC medications, including cough drops, was eliminated. This means most cough drops are now eligible for FSA reimbursement without a prescription or a Letter of Medical Necessity.

While cough drops are generally eligible, products marketed as “natural” or “herbal” without active medicinal ingredients might not qualify. A Letter of Medical Necessity (LMN), which explains why an item or service is recommended to treat a specific health condition, is typically reserved for items that might otherwise be considered for general health or have a dual purpose. However, for medicated cough drops, this documentation is generally no longer necessary for FSA eligibility.

Submitting Claims for Reimbursement

Using FSA funds for eligible purchases involves two primary methods: using an FSA debit card at the point of sale or submitting claims for reimbursement. Many FSA plans provide a dedicated debit card, which functions similarly to a regular debit card but is specifically linked to your FSA balance. These cards can be used directly at pharmacies, doctor’s offices, and other approved merchants for eligible expenses.

Even when using an FSA debit card, it is important to retain all itemized receipts, as the Internal Revenue Service (IRS) requires substantiation for all FSA purchases. Your plan administrator may periodically request these receipts to verify a transaction’s eligibility. For out-of-pocket purchases, individuals must submit a claim for reimbursement, which requires specific documentation.

Documentation for reimbursement includes an itemized receipt or an Explanation of Benefits (EOB) from your healthcare provider. This documentation must clearly state the vendor name, the date of purchase or service, a detailed description of the expense, and the amount paid. Generic credit card receipts or canceled checks are not sufficient on their own, as they often lack the required itemization and description of services or products.