Does FSA Cover Prescriptions? What Is Eligible

Flexible Spending Accounts (FSAs) help individuals manage healthcare costs by setting aside pre-tax money. These employer-sponsored benefits allow participants to pay for eligible medical, dental, and vision expenses, potentially reducing their taxable income and saving money. Understanding FSA eligibility for prescription medications is important for maximizing benefits.

Understanding Flexible Spending Accounts (FSAs)

Flexible Spending Accounts are offered by employers, allowing employees to contribute pre-tax salary for qualified out-of-pocket healthcare expenses. This contribution reduces an individual’s taxable income, leading to potential tax savings. Funds are generally available at the beginning of the plan year, even if not yet fully contributed through payroll deductions. FSAs are distinct from Health Savings Accounts (HSAs) and are subject to specific Internal Revenue Service (IRS) regulations, including the “use-it-or-lose-it” rule. This rule means that any funds not used by the end of the plan year are typically forfeited, though employers may offer exceptions.

Eligible Prescription Expenses

Prescription medications are eligible expenses for reimbursement through a Flexible Spending Account. This includes both brand-name and generic drugs prescribed by a medical professional to treat a diagnosed condition. Eligible items extend beyond traditional pills to various forms of prescribed treatments. For instance, insulin and diabetic supplies are eligible, as are prescribed vision items like contact lenses and eyeglasses.

The eligibility of over-the-counter (OTC) items has evolved. Since 2020, many OTC medicines and drugs no longer require a prescription to be eligible for FSA reimbursement. This means common items such as pain relievers, antacids, allergy medications, and cold and flu remedies can be purchased with FSA funds without a doctor’s note. However, products for general health or cosmetic purposes, such as vitamins or certain dietary supplements, remain ineligible unless prescribed to treat a medical condition.

Using Your FSA for Prescription Purchases

Many FSA plans provide a dedicated debit card, which functions similarly to a regular debit card but is linked to the FSA balance. This card can be used directly at pharmacies or other approved retailers, allowing for immediate payment at the point of sale. When using the debit card, keep itemized receipts, as the IRS may require substantiation to verify eligibility.

If an FSA debit card is unavailable, or for out-of-pocket purchases, reimbursement is the alternative method. This involves paying for the eligible expense with personal funds and then submitting a claim to the FSA administrator. The claim must be accompanied by specific documentation, such as an itemized receipt or an Explanation of Benefits (EOB). Required information on documentation includes the date of service, type of service, patient’s name, provider’s name, and the cost. Credit card receipts or balance forward statements do not meet these requirements.

Important Rules and Exceptions

The “use-it-or-lose-it” rule means FSA funds must be spent by the end of the plan year or they are forfeited. Employers offer options to provide flexibility. One exception is a grace period, which allows participants up to 2.5 months after the plan year ends, to incur new eligible expenses using the prior year’s funds. For a calendar year plan, this often extends the deadline to March 15 of the following year.

Another option is the carryover, which permits unused funds to roll over into the next plan year. For instance, for plan years ending in 2025, the IRS allows a carryover of up to $660. Employers can offer either a grace period or a carryover, but not both. These options are decided by the employer, so it is necessary to check with your specific plan administrator to understand which, if any, apply to your FSA.