Reimbursable OTC Items for HSAs, HRAs, and FSAs

Health flexible spending accounts (FSAs), health reimbursement arrangements (HRAs) and health savings accounts (HSAs) may provide tax-free reimbursements of certain over-the-counter (OTC) items. OTC items are those that are generally available to consumers without prescription.

To be reimbursable, an OTC item must be for “medical care,” as defined under the Internal Revenue Code (Code) Section 213(d). Medical care expenses are amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting a structure or function of the body.

Under the Affordable Care Act (ACA), health FSAs, HRAs, and HSAs needed a prescription to reimburse the costs of OTC medicine or drugs (except for insulin) on a tax-free basis. However, on March 27,2020 President Trump signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) into law. Effective Jan. 1, 2020, the CARES Act allows OTC drugs to be treated as qualified medical expenses that may be paid for using these tax-advantaged arrangements.

Over-the-counter (OTC) medicine and drug expenses that may include, but not limited, to acetaminophen, acne products, allergy products, antacid remedies, antibiotic creams/ointments, anti-fungal foot sprays/creams, aspirin, baby care products, cold remedies, (including shower vapor tabs), cough syrups and drops, medicated eye and ear drops, ibuprofen, laxatives, migraine remedies, motion sickness, medicated nasal sprays, pain relievers, sleep aids, teething gels, and topical creams for itching, stinging, burning, pain relief, sore healing or insect bites. Read more:

LINKS AND RESOURCES

Which Expenses are Eligible for HSA,FSA, and HRA Reimbursement?

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Health Savings Account

A type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses.

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Health Reimbursement Arrangements

Health Reimbursement Arrangements (HRAs) are employer-funded group health plans from which employees are reimbursed tax-free for qualified medical expenses up to a fixed dollar amount per year. Unused amounts may be rolled over to be used in subsequent years. The employer funds and owns the arrangement. Health Reimbursement Arrangements are sometimes called Health Reimbursement Accounts.

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Flexible Savings Account

If you have a health plan through a job, you can use a Flexible Spending Account (FSA) to pay for health care costs, like deductibles, copayments, coinsurance, and some drugs. They can lower your taxes.

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Code Section 213(d)

Allowance of deduction

There shall be allowed as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer.

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CARES Act

Click here to read the complete CARES Act.