Are Eye 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 to pay for qualified out-of-pocket healthcare costs. This arrangement offers a tax advantage, as the funds contributed are not subject to federal income tax, Social Security, or Medicare taxes. FSAs are designed to help manage a wide array of healthcare expenses, enabling participants to pay for eligible medical, dental, and vision services and products with tax-free dollars. The Internal Revenue Service (IRS) defines what constitutes a qualified medical expense for FSA purposes.

Eligibility Criteria for Eye Drops

Eye drops are generally eligible for Flexible Spending Accounts when used for medical care. This includes products intended for the diagnosis, cure, mitigation, treatment, or prevention of a disease. Both prescription and many over-the-counter (OTC) eye drops can qualify for reimbursement through an FSA.

Prescription eye drops, which are prescribed by a healthcare provider for specific conditions like infections, glaucoma, or severe dry eye, are typically eligible without additional documentation. Their prescribed nature inherently indicates a medical purpose.

Since January 1, 2020, most over-the-counter medications, including eye drops, became eligible for FSA reimbursement without requiring a prescription or a Letter of Medical Necessity (LMN). This means common OTC eye drops for lubricating dry eyes, relieving allergies, or reducing redness can be purchased with FSA funds. Eligible OTC eye drops include those for symptoms like dryness, irritation, burning, stinging, or blurry vision.

While OTC eye drops no longer typically need an LMN, a Letter of Medical Necessity is a document from a licensed healthcare provider. It confirms a product or service is medically necessary for a specific condition, outlining the diagnosis and recommended treatment. An LMN can provide substantiation for items where eligibility is unclear or if an FSA administrator requests verification.

Using Your FSA for Eye Drop Purchases

Utilizing FSA funds for eye drop purchases can be straightforward. Many FSA plans provide a debit card linked directly to the account, which can be used at the point of sale. This card functions similarly to a regular debit card, allowing for direct payment at pharmacies, eye care providers, and other eligible merchants.

When using an FSA debit card, some merchants have an Inventory Information Approval System (IIAS) that automatically verifies if a purchase is for an eligible medical expense. If the item is recognized as eligible, the transaction is approved. Retaining itemized receipts for all purchases is important for record-keeping and potential audits by the IRS or the FSA administrator.

For purchases made without an FSA debit card, or if the card was declined, individuals can submit a claim for reimbursement. The reimbursement process typically requires a claim form along with acceptable documentation, such as an itemized receipt. This receipt must clearly show the date of purchase, the merchant name, a description of the item, and the amount charged.

Maintaining records of all FSA transactions, including itemized receipts and any applicable Letters of Medical Necessity, is crucial. These documents serve as proof of eligible expenses and may be requested by the FSA administrator or the IRS during an audit. It is advisable to keep these records for at least three years from the tax filing deadline.