Why Are HSA Withdrawals For Over-the-Counter Drugs Now Allowed?
Previously, over-the-counter (OTC) drugs prescribed by a doctor were excluded from being paid for with HSA funds. This meant that expenses incurred on OTCs were not eligible for tax-free reimbursement. However, thanks to changes introduced by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in 2020, this restriction has been lifted.
This change is significant because it allows HSA holders to use their accounts to purchase a wider range of medical expenses, including OTC medications. The change went into effect retroactively to the beginning of 2020, so any eligible OTC expenses incurred since then can be reimbursed from an HSA.
OTC drugs that are now eligible for HSA reimbursement include:
Pain relievers
Cold and flu medicines
Allergy medications
Antacids
Vitamins and supplements
Before this change, people who wanted to use their HSA funds to purchase OTC drugs had to first obtain a prescription from their doctor. This was often a time-consuming and inconvenient process, and it could also result in additional costs.
Who Can Benefit From This Change?
The change in HSA rules regarding OTC drugs is beneficial to anyone who has an HSA and incurs eligible medical expenses. This includes:
Individuals with high-deductible health plans (HDHPs)
Families with HDHPs
Self-employed individuals with HDHPs
How to Use Your HSA to Reimburse OTC Expenses
To use your HSA to reimburse OTC expenses, you will need to:
1. Keep receipts for all eligible OTC purchases, and
2. Submit a claim to your HSA administrator along with the receipts in what is called an account reconciliation.
Your HSA administrator will then review your claim and reimburse you for the eligible expenses.
Conclusion
The change in HSA rules regarding OTC drugs is a positive development that will benefit many people. It is important to be aware of this change so that you can take advantage of it and save money on your medical expenses.
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