Can I Use My HSA for My Parents’ Medical Expenses?

Health Savings Accounts (HSAs) provide a tax-advantaged way to cover medical expenses, making them an appealing option for many individuals. However, using HSA funds for family members, such as parents, requires navigating specific IRS rules.

Dependent Status Requirements

To use your HSA for your parents’ medical expenses, they must qualify as dependents under the Internal Revenue Code (IRC), specifically Section 152.

Criteria for Dependency

Your parents must not be claimed as dependents by someone else and must either be related to you or have lived with you for the entire year. Their gross income must not exceed the exemption amount, which was $4,400 for 2022, adjusted annually for inflation. While your income does not affect their status, you must provide more than half of their financial support, including housing, food, and medical care. Keep detailed records to substantiate your claim, particularly if siblings contribute financially.

Financial Support Threshold

You must provide over half of your parents’ total support to claim them as dependents. This includes expenses such as housing, food, and medical care. Use IRS Publication 501 to evaluate contributions accurately. Precise documentation is essential, especially when financial support is shared among siblings.

Residency Requirements

Your parents must be U.S. citizens, U.S. nationals, or residents of the U.S., Canada, or Mexico. They cannot file a joint tax return unless it is solely to claim a refund with no tax liability. For international residency situations, consult a tax advisor or IRS resources to understand applicable tax treaties and exclusions.

Qualified Medical Costs

HSA funds can be used for qualified medical expenses as defined by the IRS under Section 213(d) of the IRC. These include costs related to diagnosis, treatment, and prevention of disease, as well as dental and vision care. Examples include doctor visits, hospital services, prescription medications, dental cleanings, and eye exams. Mental health services, such as therapy, also qualify. Keep thorough records and receipts to substantiate HSA distributions and avoid taxes or penalties.

Non-Qualifying Scenarios

Using HSA funds for non-medical expenses results in income tax and a 20% penalty unless the account holder is over 65, disabled, or deceased. HSA funds generally cannot be used for insurance premiums, except for specific cases like COBRA coverage or Medicare premiums after age 65. Cosmetic procedures, such as elective surgeries, are not eligible for HSA reimbursement.

Tax Reporting Processes

HSA holders receive Form 5498-SA annually, detailing total contributions. Accurate reporting on your tax return is crucial to avoid discrepancies with IRS records. Form 1099-SA reports distributions, highlighting qualified and non-qualified expenses. Maintaining organized records ensures accurate tax filing and prevents disputes with tax authorities.

Penalties for Ineligible Spending

Using HSA funds for non-qualified expenses triggers income tax and a 20% penalty. In the event of an audit, insufficient documentation can lead to further complications. Retain comprehensive records of all HSA transactions, including receipts and invoices, to avoid penalties and ensure compliance.