Is Diaper Rash Cream FSA Eligible?

A Flexible Spending Account (FSA) is an employer-sponsored benefit allowing individuals to set aside pre-tax money for qualified medical expenses. This reduces taxable income and helps cover healthcare costs, from doctor visits to eligible over-the-counter products. The primary goal of an FSA is to provide a tax-advantaged way to manage healthcare expenditures throughout the plan year.

Eligibility Requirements for Diaper Rash Cream

Diaper rash cream is generally considered an eligible expense for FSA reimbursement because it treats or prevents a medical condition. Diaper rash, medically termed diaper dermatitis, involves skin inflammation. Products designed to alleviate or prevent this irritation qualify as medical care expenses.

Eligible diaper rash creams typically contain active ingredients like zinc oxide or petrolatum. These function as skin protectants, creating a barrier against wetness and irritants. Since the CARES Act in 2020, many over-the-counter (OTC) products, including diaper rash creams, are FSA eligible without a prescription. This simplified using FSA funds for these common healthcare needs.

Using Your FSA for Diaper Rash Cream

Using your FSA to purchase diaper rash cream typically involves two primary methods. Many FSA plans issue a debit card linked directly to your account, usable at the point of sale. When shopping at pharmacies or stores with an Inventory Information Approval System (IIAS), the system often automatically identifies eligible products, allowing for direct payment from your FSA funds.

Alternatively, you can purchase the cream out-of-pocket and then submit a claim for reimbursement. This method requires an itemized receipt detailing the purchase date, item description, and amount paid. Reimbursement claims are usually processed within a few business days, with funds typically deposited directly into your bank account.

Important Considerations for FSA Purchases

Maintaining detailed records of all FSA-eligible purchases is important, even when using an FSA debit card. The IRS requires substantiation for all FSA transactions, meaning you may need to provide itemized receipts for audits or plan administrator requests. These receipts prove your purchases align with eligible medical expenses. Keep these documents for at least three to seven years, as tax authorities may request them.

FSA funds are generally subject to a “use-it-or-lose-it” rule, meaning unspent money at the end of the plan year may be forfeited. Many employers offer a grace period or a carryover option to mitigate this rule. A grace period extends the spending deadline by up to 2.5 months into the new plan year. A carryover allows a limited amount, such as up to $660 for the 2025 plan year, to roll over into the next year. Understanding your specific plan’s rules is important to maximize your FSA benefits and avoid forfeiting funds.