Can You Buy Soap With an HSA?

A Health Savings Account (HSA) is a tax-advantaged savings account. It offers a triple tax advantage: contributions are tax-deductible, the funds grow tax-free, and withdrawals for qualified medical expenses are also tax-free. These accounts are available to individuals enrolled in a high-deductible health plan (HDHP) and serve as a way to save and pay for current and future medical costs, including those in retirement. The funds within an HSA roll over year to year and remain with the account holder even if they change employers.

Understanding Eligible HSA Expenses

The Internal Revenue Service (IRS) defines eligible medical expenses as costs primarily incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Common examples of eligible expenses include doctor visits, prescription medications, dental care, and vision care.

Additionally, various over-the-counter (OTC) medications and products became eligible after the CARES Act of 2020, removing the previous requirement for a prescription. This includes items such as pain relievers, allergy medications, and certain skincare products. The IRS provides comprehensive guidance on what qualifies as a medical expense in publications like IRS Publication 502.

Eligibility of Personal Care Items

General-purpose personal care items, including most types of soap, are not eligible HSA expenses. These items are for general health and hygiene, not for treating a specific medical condition. The IRS distinguishes between products used for routine personal care and those with a primary therapeutic purpose.

However, there are specific scenarios where soap may qualify. Medicated soaps, such as those formulated for acne, eczema, psoriasis, or other skin conditions, are eligible. These products contain active medicinal ingredients to treat a specific skin disorder. If a soap is prescribed by a physician for a particular medical condition, it would also be considered an eligible expense. Eligibility hinges on the item’s primary purpose being to alleviate or treat a medical condition.

Supporting Your HSA Purchases

Maintaining detailed records is important when using HSA funds, especially for items that might require specific justification. Account holders are responsible for verifying the eligibility of their purchases. Keep all receipts and invoices for HSA-funded expenses.

For items like medicated or prescribed soaps, retain documentation that supports the medical necessity. This documentation could include a doctor’s note, a prescription, or an Explanation of Benefits (EOB) statement from your insurer. These records are crucial in the event of an IRS audit, as account holders can face a penalty and income tax on distributions if they cannot prove the eligibility of a purchase. Tax professionals often recommend keeping these records for at least seven years.