Does Your HSA Cover Allergy Medicine?

A Health Savings Account (HSA) helps manage healthcare costs and offers tax benefits. Contributions made to an HSA are tax-deductible, the funds grow tax-free, and withdrawals are tax-free when used for qualified medical expenses. This triple tax advantage makes HSAs a useful financial tool for individuals covered by a high-deductible health plan. Many people wonder if common allergy medications and treatments qualify for these tax-advantaged funds.

Understanding HSA-Eligible Medical Expenses

Understanding what qualifies as an HSA-eligible medical expense is important for using these accounts. According to the Internal Revenue Service (IRS), medical expenses must primarily be for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. This definition, found in IRS Code Section 213(d), guides what can be purchased with HSA funds. The IRS provides guidance on these qualified expenses, which cover medical care.

Expenses for general health, cosmetic purposes, or items that do not directly address a medical condition are not eligible. For instance, while a pain-relieving foot massager might qualify if it treats a medical issue, general comfort items like new sneakers would not. Therefore, any expense must have a clear medical purpose to be considered HSA-eligible.

Coverage for Allergy Medications

Health Savings Accounts cover allergy-related expenses, including medications and treatments. Prescription allergy medications, such as prescribed antihistamines, nasal sprays, and eye drops, are HSA-eligible. These items are considered qualified medical expenses because they are prescribed by a healthcare professional to treat a specific medical condition.

Over-the-counter (OTC) allergy medications are also eligible for HSA use without needing a prescription. This expanded eligibility came into effect on January 1, 2020, following changes from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Common OTC allergy products now covered include non-prescription antihistamines, decongestants, saline nasal sprays, sinus rinses, and anti-itch creams. These medications must still be used to address a medical condition, not for general wellness.

Beyond daily medications, other allergy-related services and products are also HSA-eligible. Allergy testing, which identifies specific allergens, is a qualified medical expense. Allergy shots, also known as immunotherapy, are covered as a medical treatment for reducing allergic symptoms. Additionally, epinephrine auto-injectors, such as EpiPens, are eligible for purchase with HSA funds, often requiring a prescription for reimbursement.

Using Your HSA for Allergy Care

Using your HSA funds for allergy care involves payment methods and record-keeping. Many HSA providers issue a debit card for direct payment at pharmacies or healthcare providers. Alternatively, pay out-of-pocket and reimburse yourself later from your HSA, if the expense was incurred after your HSA was established. Some HSA administrators also offer online payment portals or allow checks to be written directly from the account.

Maintaining records for HSA-funded expenses is important for tax purposes and IRS audits. Keep itemized receipts, invoices, and Explanation of Benefits (EOB) statements. These documents prove withdrawals were for qualified medical expenses. Retain these records for at least seven years, or as long as your HSA account is maintained, to align with audit periods.

Using HSA funds for non-qualified expenses can lead to tax penalties. If funds are withdrawn for purposes other than qualified medical expenses before age 65, the amount is subject to ordinary income tax and an additional 20% penalty. Exceptions apply if the account holder is age 65 or older, disabled, or in the event of death. Proper documentation ensures all HSA distributions remain tax-free and penalty-free.