Can HSA Pay for Over-the-Counter Drugs?

A Health Savings Account (HSA) offers a tax-advantaged savings mechanism to help individuals cover qualified healthcare expenses. These accounts are available to those enrolled in a high-deductible health plan (HDHP). Contributions are pre-tax, grow tax-free, and can be withdrawn tax-free for eligible medical costs. Understanding qualified medical expenses is important for maximizing HSA benefits, as their scope has expanded over time.

Eligible Over-the-Counter Purchases

Eligibility for over-the-counter (OTC) drugs and products for HSA reimbursement changed with the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. This legislation permanently eliminated the prescription requirement for OTC medicines and drugs with HSA funds. The CARES Act also expanded eligibility to include menstrual care products, effective retroactively to January 1, 2020.

A wide array of common OTC items are now eligible for HSA use without a doctor’s note. This includes pain relievers like acetaminophen and ibuprofen, cold and flu medications, allergy medicines, and heartburn remedies. First aid supplies such as bandages and certain skin treatments for conditions like acne and eczema are also covered. The item must be for “medical care,” as defined by Internal Revenue Code Section 213(d), meaning it’s used for diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting a structure or function of the body.

Not all non-prescription items qualify. Products for general health or cosmetic purposes, like most hygiene items such as toothpaste or deodorant, are not eligible. Vitamins and dietary supplements are ineligible unless specifically prescribed by a medical professional to treat a diagnosed medical condition. The expense must directly address a medical need, rather than merely promoting overall wellness.

Using Your HSA for Over-the-Counter Items

Accessing HSA funds for eligible OTC purchases is straightforward, with several convenient methods. Most HSA providers issue a dedicated debit card linked directly to your account. This card functions like a standard debit card and can be used at the point of sale in pharmacies, grocery stores, and other retail establishments that carry eligible health products. Many online retailers and pharmacies also accept HSA debit cards for direct payment of qualified items.

Alternatively, you can pay for eligible OTC items out-of-pocket using personal funds and then seek reimbursement from your HSA. This process involves logging into your HSA provider’s online portal or submitting a reimbursement form. You will need to provide documentation, such as itemized receipts, to substantiate the expense. Once the claim is processed and approved, funds are transferred from your HSA to your personal bank account.

HSAs offer flexibility regarding when you can reimburse yourself for qualified medical expenses. There is no deadline for reimbursement; you can pay for an eligible expense today and reimburse yourself years later, even during retirement. The only requirement is that your HSA must have been established at the time the medical expense was incurred. This allows account holders to manage funds, potentially letting their HSA balance grow tax-free for a longer period.

Maintaining Proper Documentation

Keeping accurate records of all HSA expenditures, particularly for over-the-counter items, is a responsibility for the account holder. This documentation is for tax purposes and in the event of an Internal Revenue Service (IRS) audit. While your HSA administrator may not always require receipts for every transaction, especially when using an HSA debit card, the burden of proving an expense was qualified rests solely with you.

Proper documentation includes itemized receipts that clearly show the date of purchase, vendor name, total amount paid, and a detailed description of the item or service. For certain services or insurance adjustments, an Explanation of Benefits (EOB) from your health insurance carrier can also serve as supporting documentation. Avoid relying on credit card slips alone, as they often lack the necessary detail about the purchased item.

Regarding how long to retain these records, a guideline is to keep them for at least three years from the date you filed your tax return for the year the expense was incurred or reimbursed. Some tax situations may warrant keeping records for six or seven years, such as if you significantly underreport income or claim a loss from worthless securities. Storing digital copies of receipts and other documents can be a way to maintain these records over the long term.