Can You Use Your HSA Card for Anything?

A Health Savings Account (HSA) functions as a tax-advantaged savings account specifically designed for healthcare expenses. It serves a dual purpose, allowing individuals to pay for current medical costs while also providing a vehicle for saving for future healthcare needs, even into retirement. The core question regarding an HSA card’s utility centers on what expenses qualify for tax-free withdrawals and what limitations exist. Understanding these distinctions is important for maximizing the benefits of an HSA.

Eligible Medical Expenses

Funds within a Health Savings Account can be used for a wide array of qualified medical expenses, as defined by IRS guidelines. These expenses generally include costs for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body.

This encompasses common services such as doctor visits, hospital stays, diagnostic tests, and prescription medications. Routine dental care, including cleanings, fillings, braces, and extractions, along with vision care like eye exams, glasses, and contact lenses, are also typically covered. Mental health services, including psychiatric care and psychological counseling, also qualify.

Preventive care is also eligible. This includes various screenings, immunizations, and annual physical examinations. Specialized care, such as acupuncture and chiropractic services, are eligible when medically necessary.

Medical equipment and supplies are also qualified expenses. This covers items like crutches, wheelchairs, bandages, and testing supplies for conditions such as diabetes. Transportation costs directly related to receiving medical care, such as mileage or fares for medical appointments, can also be included.

Long-term care expenses, including premiums for qualified long-term care insurance policies up to specific IRS limits based on age, are also eligible. Additionally, home modifications made for medical purposes, such as installing ramps or other accessibility features, can be covered.

Common Non-Eligible Expenses

While an HSA covers many healthcare-related costs, certain items and services are generally not considered eligible medical expenses by the IRS. Knowing these non-eligible expenses helps avoid potential tax implications.

Many general health items, such as toothpaste, toiletries, and vitamins taken for overall wellness rather than a specific medical condition, are not eligible. Gym memberships, health club dues, and weight loss programs are typically excluded unless prescribed by a physician as part of a treatment plan for a specific diagnosed medical condition like obesity, heart disease, or diabetes. In such cases, a letter of medical necessity from a healthcare provider is often required.

Elective cosmetic procedures, including most cosmetic surgeries, are generally not eligible if their primary purpose is to improve appearance rather than to treat a medical condition or deformity resulting from injury or disease. For example, a nose reshaping procedure for cosmetic reasons would not qualify, but if it were done to correct breathing issues, it might.

Most health insurance premiums are not qualified HSA expenses, with some specific exceptions. These exceptions include premiums for COBRA continuation coverage, Medicare Parts A, B, D, and Medicare HMO premiums, and qualified long-term care insurance premiums within annual IRS limits.

Over-the-counter (OTC) medicines were generally not eligible without a prescription before 2020, but current rules allow most OTC drugs, along with menstrual care products, to be eligible without a prescription.

Using Your HSA for Non-Medical Purposes

Using Health Savings Account funds for non-medical purposes carries different implications depending on the account holder’s age. The rules encourage using HSAs for healthcare expenses while providing flexibility in retirement.

Before the account holder reaches age 65, using HSA funds for non-medical expenses results in significant penalties. Any such withdrawal is subject to ordinary income tax. In addition to income tax, an extra 20% penalty tax is assessed on the withdrawn amount.

Once the account holder reaches age 65, the rules regarding non-medical withdrawals become more lenient. At this age, or upon becoming disabled, withdrawals for any purpose are no longer subject to the 20% penalty. However, if the funds are used for non-qualified medical expenses, they are still subject to ordinary income tax.

This change effectively allows the HSA to function similarly to a traditional retirement account after age 65, where withdrawals are taxed as ordinary income if not used for qualified expenses. The primary distinction is that withdrawals for eligible medical expenses remain entirely tax-free at any age.

Documentation and Reimbursement

Effective management of a Health Savings Account requires diligent record-keeping and an understanding of the reimbursement process. Proper documentation ensures compliance with IRS regulations and facilitates tax-free withdrawals for eligible expenses.

Maintaining detailed records for all HSA expenditures is important. This includes keeping receipts, explanation of benefits (EOB) statements from insurance providers, and any doctor’s notes supporting the medical necessity of an expense. These records are necessary to prove the eligibility of expenses in the event of an IRS audit.

HSA funds can be used to reimburse individuals for eligible medical expenses they initially paid out-of-pocket with personal funds. The process typically involves paying for the expense with personal money, saving the receipt, and then initiating a withdrawal from the HSA. This withdrawal can be through a transfer to a linked bank account, an ATM withdrawal using the HSA card, or even by writing a check from the HSA.

A key requirement for reimbursement is that the medical expense must have been incurred after the HSA was established. There is no time limit on when the reimbursement can be claimed, meaning individuals can pay out-of-pocket now and reimburse themselves years later, allowing the HSA funds to continue growing tax-free.