Is CBD FSA Eligible for Medical Expenses?

Flexible Spending Accounts (FSAs) offer a tax-advantaged way for individuals to manage healthcare expenses. These employer-sponsored accounts allow employees to set aside pre-tax income for qualified medical costs. Cannabidiol (CBD), a compound derived from the cannabis plant, has gained widespread attention for its potential health applications. Many consumers wonder if CBD products qualify as eligible medical expenses for FSA reimbursement.

General FSA Eligibility

The Internal Revenue Service (IRS) defines eligible medical expenses as costs incurred primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Only expenses meeting this definition can be reimbursed through an FSA.

For certain over-the-counter (OTC) medications and products, the CARES Act removed the prior prescription requirement for FSA eligibility. However, some items serving both a medical and general wellness purpose may still require a Letter of Medical Necessity (LMN) to demonstrate their medical purpose.

CBD Eligibility Requirements

CBD products are generally not considered eligible for FSA reimbursement. This is primarily because the IRS has not issued specific guidance on their eligibility status. Without clear direction from the IRS, most FSA administrators classify CBD oil and other CBD products as ineligible for purchase with FSA funds.

Using FSA funds for items not explicitly deemed eligible carries a risk. If an expense is later determined to be ineligible, the individual may be required to repay the funds to their FSA. For Health Savings Accounts (HSAs), which share similar eligibility rules, such an issue could result in the funds being treated as taxable income, potentially incurring an additional 20% penalty.

Some FSA providers might consider CBD products eligible if they are prescribed by a licensed healthcare provider for a diagnosed medical condition. In such cases, a Letter of Medical Necessity (LMN) would be required to substantiate that the CBD product is being used for a specific medical purpose rather than for general wellness or recreational use.

Using Your FSA for CBD

If a specific CBD product is determined to be eligible by an FSA administrator, typically through a medical diagnosis and a Letter of Medical Necessity (LMN), the reimbursement process involves submitting proper documentation. The primary documents required for any FSA claim are a detailed receipt from the vendor and the LMN or prescription from a qualified healthcare provider. The receipt should clearly show the item purchased, the purchase date, and the cost.

The LMN, provided by a doctor, should explain the diagnosed medical condition and why the CBD product is necessary for its treatment. This letter helps confirm that the expense is for medical care as defined by IRS guidelines. Claims are generally submitted to the FSA administrator following the specific instructions of the plan.

Important Considerations

Rules governing eligible expenses for Health Savings Accounts (HSAs) largely mirror those for Flexible Spending Accounts. Therefore, the principles regarding CBD eligibility often apply similarly to HSA funds. The IRS determines which expenses qualify for these tax-advantaged accounts, and plan administrators adhere to these federal guidelines.

Plan rules can vary among different FSA providers and employers. Always consult your specific FSA administrator or human resources department before purchasing CBD products for reimbursement. They can provide clarity on coverage and documentation requirements or potential restrictions.