Can I Buy Cough Drops With HSA Funds?

Health Savings Accounts (HSAs) offer a tax-advantaged way to save and pay for qualified medical expenses. Many individuals wonder if common over-the-counter (OTC) items, such as cough drops, are eligible. Understanding eligible expenses is important for maximizing HSA benefits.

Eligibility of Cough Drops for HSA

Cough drops are generally eligible for Health Savings Account reimbursement as a medical expense under IRS Code Section 213(d). They primarily provide relief from symptoms associated with colds, coughs, or throat irritation. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, expanded HSA eligibility to include over-the-counter medications and menstrual products without a prescription.

To qualify, cough drops must have a therapeutic purpose and contain active medicinal ingredients. Examples include menthol, a local anesthetic, and dextromethorphan, a cough suppressant. Non-medicated lozenges or candies, offering soothing properties without medicinal action, are typically not eligible. The distinction lies in whether the product is intended for the diagnosis, cure, mitigation, treatment, or prevention of a medical condition.

Using Your HSA for Qualified Purchases

Once an item, like medicated cough drops, is determined eligible, several methods exist for using your HSA funds. The most direct approach involves using an HSA-linked debit card at the point of sale. This card functions like a regular debit card and can be used at pharmacies, grocery stores, or online retailers that accept health-related payments.

Alternatively, pay for qualified medical expenses out-of-pocket and then reimburse yourself from your HSA. This process typically involves submitting a claim to your HSA administrator, which may require a receipt or proof of payment. Many HSA providers offer online portals or mobile apps to facilitate these reimbursement requests and transfers to your linked bank account.

Record Keeping for HSA Purchases

Maintaining accurate records for all HSA transactions is important for tax purposes or in the event of an IRS audit. While not typically required to submit receipts to your HSA provider, you are responsible for substantiating that withdrawals were for qualified medical expenses. This documentation validates appropriate fund use and helps avoid potential taxes and penalties on ineligible distributions.

Keep detailed receipts that clearly show the item purchased, date, cost, and vendor. Other relevant documents, such as explanations of benefits (EOBs) from your insurance company, should also be retained. Experts suggest keeping these records for at least three years after filing the tax return for the year the expense was incurred, with some recommending seven years to align with broader IRS audit periods.