Can You Use HSA for Cosmetic Dermatology?

Health Savings Accounts (HSAs) provide a tax-advantaged way for individuals to save and pay for qualified healthcare expenses. These accounts are available to those enrolled in a High-Deductible Health Plan (HDHP). Funds contributed to an HSA are typically pre-tax, grow tax-free, and can be withdrawn tax-free for eligible medical expenses.

Understanding Eligible Medical Expenses

The Internal Revenue Service (IRS) defines eligible medical expenses for HSA purposes as costs paid for the diagnosis, cure, mitigation, treatment, or prevention of disease. These expenses also include treatments affecting any structure or function of the body. The primary purpose of the expense must be to alleviate a physical or mental defect or illness. Common examples of eligible expenses include doctor visits, prescription medications, dental care, vision care, and many types of surgeries.

Cosmetic Procedures and HSA Funds

HSA funds generally cannot be used for cosmetic procedures. The IRS considers expenses incurred merely for cosmetic reasons as ineligible medical expenses. This includes procedures primarily aimed at improving appearance without promoting proper body function or treating an illness or disease. Examples of non-eligible cosmetic procedures include purely elective facelifts, liposuction, hair transplants for baldness, chemical peels for aesthetic improvement, and non-medical Botox injections. Such services are considered elective and not medically necessary.

Medical Necessity and Dermatological Care

While purely cosmetic procedures are excluded, medically necessary dermatological care is an eligible HSA expense. If a dermatological procedure or treatment addresses a specific disease, illness, or physical defect, it can be paid for with HSA funds. This includes treating severe acne that causes physical symptoms, removing cancerous moles, addressing eczema, or managing skin conditions related to an underlying medical issue. The determining factor is the procedure’s purpose: whether it serves a medical treatment goal or is solely for aesthetic enhancement. If a procedure has both cosmetic and medical components, obtain documentation from a healthcare provider clearly establishing medical necessity.

Implications of Using HSA for Non-Eligible Expenses

Using HSA funds for non-eligible expenses carries significant financial consequences, as the distributed amount will be included in your gross income for tax purposes. If the account holder is under age 65, non-qualified withdrawals are also subject to an additional 20% penalty tax. For example, a $1,000 withdrawal for a non-qualified expense could result in $200 in penalty tax, plus income tax. Exceptions to the 20% penalty exist for disability or death. Maintain thorough records of all HSA expenditures and consult a tax professional if uncertain about an expense’s eligibility.