Can You Use HSA for Tattoo Removal?

Health Savings Accounts (HSAs) offer a tax-advantaged way to save and pay for qualified medical expenses. Individuals often wonder if these accounts can be used for various procedures, including tattoo removal. Eligibility depends on specific criteria established by the IRS.

Understanding HSA Eligibility

HSAs help individuals covered by high-deductible health plans (HDHPs) pay for healthcare costs with pre-tax dollars. Funds contributed to an HSA grow tax-free, and distributions for qualified medical expenses are also tax-free. The IRS defines qualified medical expenses as costs primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any part or function of the body. These expenses must be for medical care, not for cosmetic reasons or general health benefits.

Tattoo Removal as a Qualified Medical Expense

Generally, tattoo removal performed solely for cosmetic reasons, such as a change in personal preference, is not a qualified medical expense by the IRS. However, tattoo removal can become a qualified medical expense if it is medically necessary. This medical necessity must directly relate to treating a diagnosed physical or mental condition.

For instance, if a tattoo causes an allergic reaction, infection, or other physical complication, its removal to alleviate these conditions would typically qualify. Its removal is also considered medically necessary if a tattoo interferes with medical treatment or diagnosis, such as obscuring a lesion requiring regular monitoring for skin cancer.

Tattoo removal may also qualify if prescribed as part of a treatment plan for severe psychological distress, anxiety, or depression directly caused by the tattoo. This applies provided a licensed medical professional diagnoses the condition. A medical professional’s diagnosis and prescription are essential for eligibility.

Documentation and Substantiation

To substantiate that tattoo removal is a qualified medical expense, especially under medical necessity criteria, diligent record-keeping is essential. Obtain a detailed doctor’s note or prescription from a licensed healthcare professional clearly stating the medical necessity for the tattoo removal. This documentation should include the diagnosed medical condition and how the removal is part of the treatment plan.

Maintaining detailed receipts from the tattoo removal provider is also important, showing the date of service, the amount paid, and the specific service rendered. These records, including any relevant medical reports or diagnosis codes, should be retained for tax purposes and in case of an IRS audit.

Using Your HSA for Qualified Expenses

Once the tattoo removal expense is qualified and documentation gathered, using HSA funds is straightforward. You can use a dedicated HSA debit card for direct payment at the time of service. Alternatively, pay out-of-pocket and submit a claim for reimbursement, which involves submitting receipts and sometimes a claim form. Direct payment from your HSA to the provider may also be an option. Ensure the expense was incurred after your HSA was established to qualify for tax-free distributions.

Consequences of Non-Qualified Use

Using HSA funds for non-qualified medical expenses carries financial implications. If funds are withdrawn for non-qualified purposes, the amount is subject to income tax. Additionally, if the account holder is under age 65, a 20% penalty tax is applied to the non-qualified distribution.

This penalty is in addition to the regular income tax owed on the withdrawn amount. For example, a $1,000 non-qualified withdrawal could result in $200 in penalties plus the applicable income tax. The IRS requires account holders to self-report non-qualified distributions on their annual tax return, and audits of HSA distributions can occur.