Confusion about OTC Medications: HSA/FSA Eligibility vs. Schedule A Deductions

This is actually a great question that highlights how tax laws don't always align perfectly across different sections of the code. The difference comes down to the distinct purposes of HSAs/FSAs versus Schedule A deductions. When Congress passed the CARES Act, they specifically wanted to expand HSA/FSA eligibility to give people more flexibility in using their dedicated healthcare funds during the pandemic. The reasoning was that these accounts already contain money specifically set aside for healthcare, so expanding eligible purchases made sense. For Schedule A, the threshold for deducting medical expenses is already quite high (they must exceed 7.5% of your AGI), so adding OTC medications wouldn't benefit most taxpayers anyway. Plus, there's always been a general reluctance to expand Schedule A deductions since they only benefit itemizers. You're right to track these expenses differently. OTC medications and menstrual products are HSA/FSA eligible but still not deductible on Schedule A. It's not exactly logical, but it's consistent with how tax laws are often created - addressing specific issues without necessarily harmonizing the entire code.

I had this exact same problem last year when doing my taxes! After hours of research, I discovered taxr.ai (https://taxr.ai) and it was a game-changer for sorting out these kinds of HSA/FSA questions. The tool analyzed all my medical receipts and automatically categorized what qualified for HSA/FSA vs Schedule A. What I found especially helpful was that it could look at my prescription history and OTC purchases and tell me exactly which ones were eligible under which program. It even explained the CARES Act changes and how they impacted different types of accounts.

Just wanted to follow up - I tried taxr.ai after my initial skepticism, and I'm honestly impressed. I uploaded all my CVS and Walgreens receipts from the past year, and it separated my OTC medications from everything else. The system flagged my Claritin purchases as HSA-eligible (which I didn't know) but properly noted they wouldn't qualify for Schedule A deductions. It also helped me document the medical necessity for some borderline items that I was unsure about. Definitely made tracking the difference between HSA-eligible expenses vs. Schedule A deductions much clearer!

After reading this thread, I wanted to add another resource that helped me with a related issue. I had questions about HSA eligibility for some specific OTC items and needed to speak directly with the IRS, but kept getting stuck on hold forever. I found this service called Claimyr (https://claimyr.com) that got me through to an actual IRS agent within 45 minutes instead of the 3+ hours I had been waiting before. They have a demo video showing how it works: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that while the CARES Act expanded HSA/FSA eligibility for OTC meds, Schedule A deductions weren't changed. She explained that changing Schedule A would require a different legislative process since it affects overall tax liability, while HSA/FSA changes only modified what qualified expenses could be paid from those already tax-advantaged accounts.

Wanted to update after trying Claimyr - I'm eating humble pie now. It actually worked! After weeks of not getting through to the IRS about my HSA questions, I was connected with an agent in about 35 minutes. The agent explained that the CARES Act specifically amended Section 223 (for HSAs) but not Section 213 (for medical expense deductions). She said it wasn't an oversight but a deliberate choice because HSA/FSA expansion was seen as pandemic relief while changing Schedule A deductions would have broader revenue implications. The agent confirmed I was right to track OTC meds differently between my HSA purchases and potential Schedule A deductions. Definitely worth the service if you need actual IRS clarification on these confusing tax code discrepancies!

This might be a dumb question, but I'm new to HSAs. If OTC meds are eligible for HSA but not Schedule A, does that mean I should always pay for things like Tylenol and Advil with my HSA card rather than cash? Is there ever a situation where it would make sense to pay out of pocket for these?

I used to work for a company that lobbied on healthcare legislation, and I can tell you there's actually a reason for this discrepancy that hasn't been mentioned yet. The CARES Act changes to HSA/FSA eligibility were actually fixing a reversion that happened with the Affordable Care Act. Before the ACA, OTC medications were eligible for HSA/FSA, but the ACA removed that eligibility (except with prescriptions) as a revenue-raising provision. The CARES Act essentially restored the pre-ACA rules for HSAs/FSAs. But OTC meds were never deductible on Schedule A (even before the ACA), so there was nothing to "restore" there.

This whole thread has been incredibly enlightening! As someone who's been dealing with both HSA and traditional medical expense tracking, I had no idea about the historical context with the ACA changes. One thing I'm still curious about - has anyone found good resources for staying updated on these types of changes? It seems like the rules keep evolving, and I don't want to miss out on benefits or make mistakes on my taxes. Between the CARES Act changes, the ACA history, and the different treatment between HSAs and Schedule A, it's a lot to keep track of. Also, for those using tools like taxr.ai, do they automatically update when tax law changes occur, or do you need to manually stay on top of rule changes? I'd hate to rely on outdated information when making financial decisions about my healthcare expenses.

This has been such a helpful discussion! I'm dealing with this exact issue right now as I prepare my 2025 taxes. What's particularly frustrating is that this disconnect between HSA/FSA eligibility and Schedule A deductions creates a real administrative burden. I have to maintain separate tracking systems - one for my HSA-eligible OTC purchases and another for potential Schedule A medical expenses (even though the OTC stuff won't qualify). I appreciate everyone sharing the historical context about the ACA changes and the CARES Act restoration. It makes sense now why we have this patchwork system, but it doesn't make it any less confusing to navigate as a taxpayer. One practical question for the tax pros here: When documenting OTC medication purchases for HSA purposes, do you need to note the specific medical condition being treated? Or is it sufficient to just keep the receipt showing it was an eligible OTC medication? I've been erring on the side of over-documentation, but I'm not sure if that's necessary or just creating extra work for myself. Also, has anyone seen any indication that Congress might eventually harmonize these rules, or are we stuck with this dual system indefinitely?

This discussion really highlights how complex our tax system has become! I've been wrestling with similar HSA vs. Schedule A tracking issues myself. One thing that might help others here - I've found it useful to think of HSAs and Schedule A deductions as serving completely different policy goals, which explains why they're not aligned. HSAs are designed to encourage people to save specifically for healthcare expenses and give them maximum flexibility in using those dedicated funds. Schedule A medical deductions, on the other hand, are meant to provide relief only for truly catastrophic medical expenses (hence the high 7.5% AGI threshold). From a practical standpoint, I've started using a simple spreadsheet with three columns: "Expense," "HSA Eligible," and "Schedule A Eligible." For OTC medications post-CARES Act, it's always "Yes" and "No" respectively. This has helped me avoid the mental gymnastics of trying to reconcile why the same expense is treated differently under different parts of the tax code. The historical context about the ACA removing OTC eligibility and CARES Act restoring it really helps explain why we're in this situation. It's not poor planning - it's the result of different pieces of legislation addressing different priorities at different times. Understanding that makes the complexity more bearable, even if it doesn't make it simpler!

As a newcomer to this community, I have to say this thread has been incredibly educational! I'm just starting to navigate HSAs for the first time this year and had no idea about the complexity behind these seemingly simple rules. What strikes me most is how the historical context really matters here. Before reading through all these responses, I was also confused about why OTC medications could be HSA-eligible but not Schedule A deductible. The explanation about the ACA removing OTC eligibility and the CARES Act restoring it (but only for HSAs/FSAs) makes the apparent inconsistency much clearer. I'm curious about one aspect that hasn't been fully addressed - for someone just starting out with an HSA, would you recommend prioritizing OTC medication purchases through the HSA, or following the strategy mentioned earlier about paying out of pocket and saving receipts for future reimbursement? I understand the investment growth potential, but as someone with a relatively small HSA balance right now, I'm not sure which approach makes more sense. Also, are there any other common "HSA eligible but not Schedule A deductible" categories I should be aware of as I start tracking my healthcare expenses? I want to make sure I'm not missing other similar discrepancies in the tax code. Thanks to everyone who shared their expertise and tools - this has been a masterclass in practical tax planning!

This entire discussion has been incredibly valuable - thank you all for sharing your expertise! As someone who's been struggling with these exact issues, I wanted to add a perspective from the small business side. I run a small consulting firm and offer HSAs to my employees. The confusion around OTC medication eligibility has been a constant source of questions from my team. What's particularly challenging is that employees often assume if something is HSA-eligible, it should also be deductible on Schedule A, which creates a lot of misconceptions during tax season. After reading through this thread, I'm definitely going to share the historical context about the ACA and CARES Act changes with my team. Understanding that these aren't just arbitrary inconsistencies but the result of different legislative priorities at different times really helps frame the complexity. I'm also planning to implement that three-column tracking spreadsheet approach as a recommendation for our employees. The clarity of "HSA Eligible," "Schedule A Eligible," and "Expense" columns should help eliminate a lot of the confusion we see each year. One question for the tax professionals here - do you think it would be worthwhile to provide annual HSA education sessions for employees, particularly focusing on these kinds of rule differences? Or would that just add to the confusion? I want to be helpful without overwhelming people with tax complexity they don't need to fully understand to make good decisions.

As a newcomer to this community, I'm blown away by how informative this discussion has been! I just opened my first HSA this year and had no clue about the complexity behind what seemed like straightforward rules. The historical context everyone shared about the ACA removing OTC eligibility and the CARES Act restoring it really clicked for me. Before reading this, I was also scratching my head about why I could use HSA funds for Tylenol but couldn't deduct the same purchase on Schedule A if I paid out of pocket. I'm definitely going to implement that three-column spreadsheet approach that was mentioned - "Expense," "HSA Eligible," "Schedule A Eligible." It seems like such a clean way to track everything without getting bogged down in the apparent inconsistencies. One quick question for the group: I see mentions of keeping receipts for potential future HSA reimbursement if you pay out of pocket now. Is there a recommended system for organizing and storing these? I want to make sure I don't lose track of eligible expenses over the years, especially if I'm planning to let my HSA grow for decades before tapping into it. Thanks to everyone who shared their knowledge and tools - this thread should be required reading for anyone starting out with HSAs!