Can I Use My HSA for Medical Marijuana?

Health Savings Accounts (HSAs) offer a valuable tool for managing healthcare costs. Many individuals question the eligible expenses for their HSA. A common query arises regarding the use of HSA funds for medical marijuana, especially as its legal landscape evolves across different states. This topic requires a clear understanding of federal tax regulations.

Understanding Health Savings Accounts

A Health Savings Account (HSA) provides a tax-advantaged savings mechanism for healthcare costs. Individuals enrolled in a high-deductible health plan (HDHP) can contribute pre-tax income to an HSA, which then grows tax-free. Distributions from the account are also tax-free, provided they are used for qualified medical expenses.

The Internal Revenue Service (IRS) defines qualified medical expenses under Internal Revenue Code Section 213(d). These expenses generally include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. For an expense to qualify, it must primarily alleviate a physical or mental defect or illness. While the IRS provides guidance, certain expenses may require a medical professional’s recommendation or prescription to qualify.

Federal Law and Medical Marijuana

The legal status of marijuana in the United States involves a significant distinction between state and federal laws. Despite numerous states having legalized cannabis for medical or recreational purposes, it remains illegal at the federal level. Under the federal Controlled Substances Act (CSA) of 1970, marijuana is classified as a Schedule I drug.

This classification indicates that, from a federal perspective, cannabis has a high potential for abuse and lacks an accepted medical use. Consequently, federal tax laws, including those governing Health Savings Accounts, adhere to this federal legal framework. The federal stance on marijuana significantly impacts its eligibility as a qualified medical expense, regardless of state-level legalizations.

HSA Eligibility for Medical Marijuana

Given marijuana’s classification under federal law, expenses related to medical marijuana are generally not considered qualified medical expenses for HSA purposes. The IRS bases its definition of qualified medical expenses on federal legality. Even if a medical professional prescribes cannabis in a state where it is legal, the federal prohibition under the Controlled Substances Act prevents it from meeting the IRS criteria for HSA-eligible expenses. This means that individuals cannot use their HSA funds to purchase medical marijuana or related products. The federal government’s position takes precedence in determining the eligibility of expenses for HSA funds.

Potential Issues of Non-Compliance

Using Health Savings Account (HSA) funds for non-qualified expenses carries tax consequences. Any amount withdrawn from an HSA for purposes other than qualified medical expenses is subject to income tax. This means the distribution is added to the account holder’s gross income for the tax year. In addition to being taxable, non-qualified distributions incur an additional 20% penalty tax if the account holder is under age 65.

This penalty is waived if the distribution occurs after the account holder reaches age 65, becomes disabled, or dies. Account holders are responsible for maintaining accurate records of all HSA expenditures, as these may be required for IRS audits.