Can I Use My HSA for Physical Therapy?

Understanding Health Savings Accounts

A Health Savings Account (HSA) is a specialized savings account for individuals enrolled in a High-Deductible Health Plan (HDHP) to manage healthcare costs. It offers a triple tax advantage: contributions are tax-deductible, investment growth is tax-free, and withdrawals for qualified medical expenses are tax-free. To be eligible, an individual must be covered under an HDHP and generally cannot have other health coverage or be enrolled in Medicare, nor be claimed as a dependent. HSAs are owned by the individual, providing portability even if employment or health plans change.

Understanding Qualified Medical Expenses

The Internal Revenue Service (IRS) defines “qualified medical expenses” as costs incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any structure or function of the body. This definition, detailed in IRS Publication 502, includes a wide range of services. Physical therapy is considered a qualified medical expense when it is medically necessary to treat a specific medical condition, injury, or disease. For instance, physical therapy for post-injury recovery or chronic pain management would qualify.

However, expenses for general health improvement or cosmetic purposes are not considered qualified medical expenses. For example, an elective massage not prescribed for a medical condition or general fitness programs would not qualify. The distinction hinges on whether the service is for the treatment of a diagnosed medical condition, rather than simply for overall well-being. This ensures that HSA funds are used for their intended purpose of addressing specific health needs.

Documentation and Record Keeping

Maintaining meticulous records is a fundamental responsibility for HSA account holders, as these records are subject to IRS review. Each expense paid with HSA funds should be supported by clear documentation. This includes itemized receipts from the physical therapy provider, detailing the services received and the amount paid.

Explanation of Benefits (EOBs) from your health insurance company, if applicable, should be retained to show how your insurance contributed and what portion you were responsible for. Doctor’s notes, prescriptions, or a Letter of Medical Necessity (LMN) from a licensed healthcare provider verifying the medical necessity of the physical therapy for a specific diagnosed condition are also crucial. These documents substantiate that the expense meets the IRS definition of a qualified medical expense. Organizing these records, whether digitally or in a physical folder, allows for easy retrieval, particularly for tax purposes or in the event of an audit.

Methods for Using Your HSA Funds

There are two primary methods for using your HSA funds for physical therapy, assuming the expense is qualified and you have the necessary documentation. The first method is direct payment, often facilitated by an HSA debit card from your administrator. This card allows you to pay the physical therapy clinic directly at the time of service. Some HSA providers also offer online bill pay options, enabling direct payment from your HSA portal.

The second common method is reimbursement. This involves paying for physical therapy out-of-pocket with personal funds, then reimbursing yourself from your HSA. To initiate a reimbursement, you typically log into your HSA administrator’s online portal or submit a claim form. You can then transfer funds electronically from your HSA to a linked personal bank account, or request a check. There is generally no time limit on when you can reimburse yourself, provided the expense was incurred after your HSA was established and was not reimbursed by any other source.

Key Considerations for HSA Compliance

Adhering to IRS guidelines is important when using HSA funds to avoid penalties. If HSA funds are used for non-qualified expenses before age 65, the withdrawal is subject to ordinary income tax and a 20% penalty. This penalty is waived if the account holder is 65 or older, or disabled, though income tax may still apply if not used for a qualified medical expense.

The account holder is responsible for substantiating qualified expenses. Retain all supporting documentation, as the IRS may request proof for any distribution. HSA funds are not subject to a “use-it-or-lose-it” rule and roll over year to year, allowing them to accumulate for future healthcare expenses, including retirement. This rollover feature makes HSAs a flexible tool for long-term health savings.