Can You Buy Cold Medicine With an HSA?

Health Savings Accounts (HSAs) offer a way for individuals with high-deductible health plans to save and pay for qualified medical expenses on a tax-advantaged basis. These accounts serve as a personal savings vehicle dedicated to healthcare costs, providing flexibility in managing medical expenditures. Funds contributed to an HSA are tax-deductible, grow tax-free, and can be withdrawn tax-free for eligible expenses, creating a triple tax advantage.

HSA Eligibility for Cold Medicine

A common question for HSA holders revolves around the eligibility of everyday health items, such as cold medicine. Prior to 2020, over-the-counter (OTC) medications generally required a doctor’s prescription to be considered an eligible expense for HSA reimbursement. This requirement created an extra step for individuals seeking to use their tax-advantaged funds for common ailments.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act significantly changed this rule. This legislation permanently removed the prescription requirement for OTC medicines, making them eligible for HSA, FSA, and HRA reimbursement without additional documentation.

Now, a wide range of OTC cold and flu remedies are eligible for purchase with HSA funds. This includes common medications like pain relievers (e.g., ibuprofen, acetaminophen), cough syrups, decongestants, sore throat lozenges, and allergy medications. The primary purpose of the medication must be for the diagnosis, cure, mitigation, treatment, or prevention of a medical condition, rather than for general well-being or cosmetic purposes.

Purchasing Cold Medicine with Your HSA

Utilizing HSA funds for eligible cold medicine purchases offers several methods. The most straightforward approach involves using your HSA debit card, which functions similarly to a regular bank debit card. This card allows for direct payment at the point of sale in pharmacies, retail stores, or online, with funds deducted from your HSA balance.

Another common method is to pay for the cold medicine out-of-pocket using personal funds and then seek reimbursement from your HSA. This approach is useful if you forget your HSA card, the merchant does not accept it, or if you prefer to let your HSA funds grow tax-free for future, larger expenses. To reimburse yourself, you submit a claim to your HSA administrator, often through an online portal or mobile app. You will need to provide details of the expense, such as the amount and date.

For online purchases, many online pharmacies and general retailers that sell eligible health products accept HSA debit cards directly.

Documentation and Record Keeping

Maintaining thorough records for all HSA expenditures, including OTC cold medicine purchases, is an account holder’s responsibility. The Internal Revenue Service (IRS) requires account holders to substantiate that all distributions from an HSA are for qualified medical expenses. While you may not need to submit receipts to your HSA administrator for every transaction, especially when using a debit card, you must retain them in case of an IRS audit.

In the event of an audit, failure to provide adequate documentation for an expense can lead to the distribution being considered taxable income, along with a potential 20% penalty if you are under age 65. Therefore, it is important to keep receipts that clearly show the date of purchase, the specific item purchased (e.g., “Tylenol Cold & Flu” rather than just “OTC medicine”), the amount paid, and the vendor name.

Organized record-keeping can involve either physical files or digital storage methods. Many HSA providers offer online tools or apps that allow you to upload and store digital copies of your receipts and track expenses. It is recommended to keep these records for at least three years after filing your tax return, or as long as you maintain the HSA account, whichever period is longer.