Can You Pay for Prescriptions With HSA?

A Health Savings Account (HSA) provides a tax-advantaged method for individuals to save and pay for qualified healthcare expenses. Prescriptions are generally considered eligible medical expenses for HSA use.

Eligible Medical Expenses

A medical expense qualifies for HSA use if it is incurred primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any part or function of the body. This broad definition includes prescription medications prescribed by a licensed healthcare professional.

Over-the-counter (OTC) medications may also qualify for HSA reimbursement. Most OTC drugs and menstrual care products are now eligible without requiring a doctor’s prescription. However, items like vitamins or general health supplements are typically not eligible unless prescribed by a medical professional to treat a specific diagnosed condition. Beyond prescriptions, HSAs cover various other common medical expenses such as doctor’s visits, dental care, vision care, and certain medical equipment. Expenses must be for medical care and not for general health or cosmetic purposes, unless the cosmetic procedure is necessary to correct a deformity from an injury or disease.

How to Use Your HSA

Utilizing HSA funds for eligible medical expenses, including prescriptions, involves several straightforward methods. Many HSA administrators provide a dedicated debit card, allowing direct payment at pharmacies, doctor’s offices, or other medical providers. This offers immediate access to your funds at the point of service.

Another common approach is to pay for the eligible expense out-of-pocket using personal funds, then reimburse yourself from your HSA. To do this, save the receipt for the medical expense and later initiate a transfer from your HSA to your personal bank account. This reimbursement can often be done through online portals or mobile applications provided by your HSA administrator, which facilitate managing funds and initiating payments or reimbursements. The flexibility of reimbursement means you can pay yourself back even months or years after the expense was incurred, provided you keep proper records.

Record Keeping and Tax Considerations

Maintaining records for all HSA expenditures is important for managing your account effectively. While you are not required to submit these records with your tax return, you must retain them in case of an IRS audit. Essential documents to keep include receipts, Explanation of Benefits (EOBs) from your insurance provider, and any documentation detailing the prescription or service received.

Withdrawals from an HSA for qualified medical expenses are tax-free. However, using HSA funds for non-qualified expenses before age 65 has tax consequences: withdrawals are taxed as ordinary income and incur an additional 20% penalty. After age 65, non-qualified withdrawals are subject to income tax but are exempt from the 20% penalty. Expenses reimbursed by other insurance or claimed as itemized deductions on your tax return cannot also be paid for with HSA funds.