Is Diaper Cream HSA Eligible? Here’s What to Know
Find out if diaper cream is HSA eligible. This guide clarifies IRS rules for medical expenses and how they apply to common care products.
Health Savings Accounts (HSAs) offer a tax-advantaged way for individuals with high-deductible health plans to save and pay for qualified medical expenses. Many people wonder about the eligibility of common household items, such as diaper cream, for HSA reimbursement. Understanding the specific Internal Revenue Service (IRS) guidelines is important to ensure proper use of these funds.
Understanding Qualified Medical Expenses
For an expense to be considered “qualified” for HSA reimbursement, it must primarily be for medical care. The IRS defines medical care 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 distinguishes items used for general health or cosmetic purposes from those addressing a specific medical condition. Expenses that generally qualify for the medical and dental expenses deduction are HSA eligible.
Over-the-counter (OTC) medications and drugs became HSA-eligible without a prescription following the CARES Act of 2020. However, for certain items that could have both a medical and a personal use, a Letter of Medical Necessity (LMN) from a licensed healthcare provider may be required to confirm the medical purpose. An LMN explains why a specific treatment, product, or device is needed for a patient’s health condition.
Diaper Cream Eligibility
Standard diaper creams intended for general skin protection or daily hygiene are not HSA eligible. These products are considered cosmetic or personal care items, rather than treatments for a specific medical condition. Conversely, medicated diaper creams and ointments designed to treat or prevent diaper rash are HSA eligible. This includes products marketed for irritant contact dermatitis, commonly known as diaper rash.
Medicated diaper rash treatments are HSA-eligible without a prescription, provided they are labeled for treating or preventing diaper rash. However, for medicated creams addressing more specific conditions like fungal infections or severe eczema, or if there is any ambiguity, obtaining a prescription or an LMN from a healthcare provider can provide documentation. This documentation confirms the product’s use is for a diagnosed medical condition.
Purchasing and Record Keeping
Account holders can use a dedicated HSA debit card at the point of purchase, similar to a regular bank card. Alternatively, individuals can pay for qualified expenses out-of-pocket and then reimburse themselves from their HSA account at a later time. This reimbursement can occur even years after the expense was incurred, as long as the HSA was established before the expense date.
Maintaining records of all HSA transactions is important. The IRS mandates that account holders keep documentation, such as receipts, prescriptions, and any Letters of Medical Necessity, to substantiate that distributions were used for qualified medical expenses. These records are important for tax purposes and in the event of an IRS audit, where failure to provide proof of eligibility can result in a 20% penalty on the ineligible amount, in addition to income tax. It is advisable to retain these records for at least three to seven years.