Can You Buy Cough Drops With Your HSA?

A Health Savings Account (HSA) provides a tax-advantaged way to save and pay for qualified medical expenses. This account is available to individuals enrolled in a High-Deductible Health Plan (HDHP). Contributions made to an HSA are tax-deductible, or pre-tax if through payroll deductions, and the funds grow tax-free. Withdrawals for eligible healthcare costs are also free from federal income tax, offering a triple tax advantage.

General HSA Eligibility

The Internal Revenue Service (IRS) defines what constitutes an eligible medical expense for HSA purposes. These expenses must be primarily for the prevention or alleviation of a physical or mental defect or illness. Common examples of eligible expenses include doctor’s office visits, prescription medications, dental care, and vision services.

Since January 1, 2020, over-the-counter (OTC) medications and products no longer require a doctor’s prescription to be considered eligible expenses for HSA reimbursement.

Cough Drops and HSA Qualification

Cough drops are now considered an eligible medical expense for HSA reimbursement. This change was brought about by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which became effective on January 1, 2020. The Act eliminated the previous requirement for a doctor’s prescription for over-the-counter drugs and medicines.

As a result, you can use your HSA funds to purchase medicated cough drops and other OTC cold and flu products without needing a written prescription. It is important that the cough drops are used for a medical condition, such as a cough or sore throat, rather than for general wellness or personal preference.

Using Your HSA for Purchases

Many HSA providers issue a debit card linked directly to your account, which can be used at the point of sale. This provides immediate access to funds for eligible expenses.

Alternatively, you can pay for qualified medical expenses out-of-pocket using your personal funds and then reimburse yourself from your HSA. Reimbursement can be initiated through online transfers to your bank account or by requesting a check from your HSA administrator. It is permissible to reimburse yourself at any time, even months or years later, as long as the expense was incurred after your HSA was established. Some HSA providers also offer online bill pay services to directly pay healthcare providers from your account.

Maintaining HSA Records

Maintaining detailed records for all HSA-related expenses is important. This documentation is essential for tax purposes and in the event of an IRS audit. You should retain itemized receipts, invoices, and Explanation of Benefits (EOB) statements from your insurance provider.

These records serve as proof that your HSA distributions were used for qualified medical expenses. If you cannot provide documentation to substantiate an expense, the distribution may be subject to income tax and a 20% penalty.

It is advisable to keep these records for at least seven years, aligning with the IRS’s potential audit period for tax returns.