Can I Buy COVID Tests With an HSA?

Health Savings Accounts (HSAs) offer a tax-advantaged way for individuals to save for and pay for qualified medical expenses. These accounts are designed to help those with high-deductible health plans manage their healthcare costs. Funds contributed to an HSA are tax-deductible, grow tax-free, and can be withdrawn tax-free for eligible expenses, providing a triple tax advantage.

Eligibility of COVID Tests for HSA Funds

COVID-19 diagnostic tests are indeed considered qualified medical expenses, making them eligible for payment or reimbursement using HSA funds. The Internal Revenue Service (IRS) clarified this eligibility, stating that the cost to diagnose COVID-19 falls under the definition of medical care. This includes various testing options, such as at-home rapid antigen tests and laboratory-processed PCR tests, whether purchased from pharmacies or online retailers.

Amounts paid for these tests are deductible medical expenses under Internal Revenue Code Section 213(d). The test must be for medical care, intended for the diagnosis, cure, mitigation, treatment, or prevention of disease, rather than for general health or employment screening unrelated to a medical condition.

While the IRS previously allowed high-deductible health plans (HDHPs) to cover COVID-19 testing and treatment before the deductible was met without affecting HSA eligibility, this relief is set to expire for plan years ending after December 31, 2024. Despite these changes regarding HDHP coverage, the direct eligibility of COVID-19 tests as qualified medical expenses for HSA reimbursement remains in effect.

Purchasing and Reimbursement Methods

Utilizing HSA funds for COVID tests typically involves one of two primary methods. Many HSA providers issue a debit card directly linked to the account, allowing direct payment for eligible COVID tests at pharmacies, healthcare providers, or online retailers. This simplifies the transaction process.

Alternatively, individuals can pay for COVID tests out-of-pocket and then seek reimbursement from their HSA. This method requires submitting a claim to the HSA administrator, which can often be done through an online portal, mobile application, or by mail. When seeking reimbursement, it is necessary to provide proper documentation, such as detailed receipts showing the item purchased, the date of purchase, and the amount paid.

The reimbursement process usually takes a few business days to a few weeks, depending on the HSA administrator’s processing times. It is important that any purchase for which reimbursement is sought must have occurred after the HSA was established.

Essential Record Keeping

Maintaining thorough records for all HSA transactions, including COVID test purchases, is an important compliance step. The primary reason for record keeping is to substantiate that all distributions from the HSA were for qualified medical expenses, particularly in the event of an IRS audit. Without proper documentation, non-qualified distributions may be subject to income tax and an additional 20% penalty.

For each COVID test purchase, you should retain detailed receipts that clearly show the name of the product, the date of the transaction, and the total cost. If you paid out-of-pocket and sought reimbursement, keep proof of payment, such as a bank statement or credit card statement, along with the reimbursement confirmation from your HSA administrator. Digital copies, like scanned receipts or electronic confirmations, are generally acceptable and can be easily organized.

Keep these records for a minimum of three years from the date your tax return was filed, which aligns with the IRS statute of limitations for audits. Organizing records by year, either in physical folders or digital files, can streamline the process of referencing them if ever required. This practice ensures adherence to tax regulations and provides a clear audit trail for all HSA expenditures.