Is CBD HSA Eligible as a Qualified Medical Expense?
Understand the specific requirements for CBD to be considered a qualified medical expense for your Health Savings Account.
Health Savings Accounts (HSAs) offer a tax-advantaged way to save and pay for qualified medical expenses. These accounts allow pre-tax contributions, tax-free growth, and tax-free withdrawals for eligible healthcare costs. A common question arises regarding the eligibility of various healthcare products and services, including cannabidiol (CBD) products, for HSA reimbursement. Understanding the specific Internal Revenue Service (IRS) guidelines is important for proper use of these funds.
Understanding Qualified Medical Expenses
The Internal Revenue Service (IRS) defines a qualified medical expense as the cost of diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body. Generally, expenses that are merely beneficial to general health, such as vitamins for overall wellness or a vacation, are not considered qualified medical expenses. HSA funds can be used for unreimbursed medical expenses that would typically be deductible on Schedule A of a tax return. This includes costs for doctor’s visits, prescription medications, dental care, and vision care, among many other items and services.
Criteria for CBD Eligibility
For CBD products to be considered a qualified medical expense for HSA purposes, specific conditions apply, aligning with rules for other over-the-counter (OTC) medications. The IRS has not issued explicit guidance for CBD oil; however, it can be eligible if it meets the criteria for “medical care.” This typically means the CBD product must be recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician. Simply using CBD for general health improvement or recreational purposes does not qualify it as an eligible expense.
The CBD product must also be a legal substance in the jurisdiction where it is purchased. While hemp-derived CBD with less than 0.3% Delta-9 THC is federally legal, specific state regulations can vary. Medical marijuana, which often contains higher THC levels, remains a Schedule I controlled substance under federal law and is not considered a deductible medical expense, even if legal under state law. If a CBD product, like Epidiolex, is an FDA-approved prescription drug, it would generally qualify as a medical expense.
Maintaining Proper Records
Maintaining thorough documentation is essential when using HSA funds for CBD products, given the eligibility criteria. Keep comprehensive records, including detailed receipts for all CBD purchases. These receipts should clearly show the date of purchase, the vendor, and the amount spent.
In addition to purchase receipts, retain documentation from your healthcare provider. This includes a clear medical diagnosis for the condition being treated and a written recommendation or prescription from your doctor for the specific CBD product. These records serve as proof that the expense was incurred for medical care and not for general health or recreational use. In the event of an IRS audit, you are responsible for substantiating that all distributions from your HSA were for qualified medical expenses, and failure to do so can result in a 20% penalty on the disallowed amount, plus applicable income taxes. Keep these records for at least three years, aligning with the typical statute of limitations for tax returns.