Are Eye Drops an HSA Eligible Expense?

A Health Savings Account (HSA) is a tax-advantaged savings and spending account designed to help individuals save for healthcare expenses. Funds can be contributed on a pre-tax basis, grow tax-free, and be withdrawn tax-free for qualified medical expenses. HSAs are a financial tool for managing healthcare costs, especially for those enrolled in high-deductible health plans.

Understanding Qualified Medical Expenses

An expense qualifies as medical if it is primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. The Internal Revenue Service (IRS) outlines this definition in Publication 502. Costs for equipment, supplies, and diagnostic devices necessary for these purposes are included. Expenses that merely benefit general health, such as vitamins for overall wellness or cosmetic procedures without a medical necessity, do not qualify. A doctor’s diagnosis or prescription can be significant in establishing eligibility for certain items.

Eye Drop Eligibility

Eye drops can be eligible for HSA reimbursement, depending on their intended use and whether a prescription or medical necessity is involved. Prescription eye drops, prescribed by a healthcare provider for a specific medical condition, are eligible for reimbursement. Over-the-counter (OTC) eye drops intended to treat a specific medical condition, such as chronic dry eye, allergies, or infections, are also eligible. For these, a Letter of Medical Necessity (LMN) from a healthcare provider is required. An LMN confirms the OTC item treats a diagnosed medical condition.

General OTC eye drops used for minor irritation, redness relief without an underlying condition, or simply for comfort are not eligible. These are viewed as personal care items rather than medical treatments.

Maintaining Records for HSA Purchases

Maintaining accurate records for HSA purchases is important for tax purposes and for an IRS audit. While you do not submit these records with your tax return, you must be able to prove that distributions were used exclusively for qualified medical expenses. Key documents to retain include itemized receipts for purchases, prescriptions for any prescription medications, and Letters of Medical Necessity where applicable for OTC items. Keeping these records ensures compliance and can prevent potential penalties on distributions that cannot be proven as qualified. It is advisable to retain these documents for at least three years from the tax filing date, as this is the general audit period.