Is Baby Powder HSA Eligible? What You Need to Know
Unravel the complexities of HSA eligibility. Understand how medical necessity, prescriptions, and proper record-keeping determine what you can expense.
Health Savings Accounts (HSAs) offer a tax-advantaged way for individuals to save and pay for qualified medical expenses. Available to those enrolled in a high-deductible health plan (HDHP), funds can be contributed, invested, and withdrawn tax-free for eligible healthcare costs. HSAs help manage healthcare expenditures, complementing the higher deductibles associated with HDHPs.
Understanding HSA Eligible Expenses
The Internal Revenue Service (IRS) defines qualified medical expenses as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. This definition, outlined in 26 U.S. Code Section 213, forms the basis for what can be reimbursed through an HSA. Expenses for general health, cosmetic purposes, or personal hygiene typically do not qualify.
Following legislative changes, certain over-the-counter (OTC) medications and products, including those for menstrual care, became HSA eligible without a prescription. Medical necessity remains the underlying principle for HSA eligibility, meaning the expense must be primarily for a medical condition rather than general well-being.
Baby Powder and HSA Eligibility
Baby powder is generally considered a personal care item and is not eligible for reimbursement with a Health Savings Account. Its primary use is for moisture absorption and friction prevention, which are comfort or hygiene-related rather than medical treatments. Routine purchases of baby powder do not meet the IRS definition of a qualified medical expense.
An exception exists if baby powder is recommended or prescribed by a medical professional for a specific medical condition. For instance, if a doctor or dermatologist advises its use to treat a diagnosed skin condition like severe diaper rash, intertrigo, or another medically recognized skin irritation, it may become HSA eligible. In such cases, a Letter of Medical Necessity (LMN) from the healthcare provider is required to substantiate medical necessity, specifying the diagnosis and medical justification for the product’s use.
Keeping Records for HSA Purchases
Thorough records for all HSA-related expenses are necessary, as the IRS requires account holders to keep records demonstrating that distributions were exclusively for qualified medical expenses. These records also prove the expenses were not previously paid or reimbursed from another source, nor taken as an itemized deduction on a tax return.
It is advisable to retain receipts, doctor’s notes, prescriptions, and any Letters of Medical Necessity for a minimum of three to seven years, aligning with general tax record retention guidelines. These documents are necessary for substantiating claims in the event of an IRS audit, as a 20% penalty, in addition to income tax, can apply to distributions that cannot be proven as qualified medical expenses.