How Can I Use My HSA Card? What Is Covered

A Health Savings Account (HSA) card provides convenient access to funds within a Health Savings Account, specifically for eligible healthcare expenses. This card functions as a direct payment tool for various medical costs. It utilizes tax-advantaged savings accumulated in an HSA, ensuring funds are available for approved health-related expenditures. The card streamlines paying for medical care, aligning with the account’s objective of facilitating tax-free savings and withdrawals for qualified expenses.

Qualifying Medical Expenses

The Internal Revenue Service (IRS) defines qualifying medical expenses for Health Savings Accounts as costs primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. These expenses must be incurred after the HSA is established. IRS Publication 502 provides comprehensive guidance on what constitutes an eligible medical expense.

Common eligible expenses include services and products like doctor visits, hospital stays, and prescription medications. Dental care, including cleanings, fillings, and orthodontics, qualifies. Vision care, including eye exams, prescription eyeglasses, contact lenses, and corrective eye surgeries like LASIK, is also eligible.

Mental health services, including psychiatric care and psychological counseling, are considered qualified medical expenses. Diagnostic tests, laboratory fees, and ambulance services also fall under this category. Less obvious but qualifying expenses include acupuncture, chiropractic care, and certain over-the-counter medications and menstrual care products, which are now eligible without a prescription.

Certain health-related costs are not considered qualifying medical expenses. These include expenses merely beneficial to general health, such as vitamins not prescribed for a specific medical condition, or cosmetic procedures not medically necessary. Gym memberships are ineligible unless prescribed by a physician to treat a specific medical condition.

While health insurance premiums are not qualified medical expenses, specific exceptions exist. These include premiums for long-term care insurance, COBRA health care coverage, health care coverage while receiving unemployment compensation, and Medicare premiums for individuals aged 65 and over. Consult IRS publications for the current list of eligible expenses.

Methods of Payment with Your HSA Card

The HSA card functions much like a standard debit card, providing direct access to your account funds for eligible medical expenses. You can use this card at various points of sale, including doctor’s offices, hospitals, and pharmacies, by swiping, inserting the chip, or tapping at terminals. Many HSA providers also allow the card to be added to digital wallets, enabling mobile payments.

For online purchases, such as ordering prescription refills or medical supplies from online pharmacies, the process is similar to using any other debit card. You simply enter the card details during checkout on the website. Similarly, for phone payments to healthcare providers or bill pay services, you can provide your HSA card information over the phone.

Beyond direct card use, another method involves paying for eligible expenses out-of-pocket and then reimbursing yourself from your HSA. This approach allows your HSA funds to remain invested and potentially grow tax-free. Reimbursement can be done through means like an online transfer from your HSA to your personal bank account, an ATM withdrawal using your HSA card, or by writing yourself a check from your HSA.

This reimbursement flexibility is particularly useful if you prefer to let your HSA balance grow or if your account does not have sufficient funds at the time of the expense. The key requirement for reimbursement is that the expense must have been incurred after your HSA was established. You can reimburse yourself for past qualified expenses, even years later, as long as proper documentation is maintained.

Understanding Compliance and Record Keeping

Maintaining thorough records for all Health Savings Account (HSA) transactions is important for compliance with IRS regulations. The individual account holder is ultimately responsible for proving that all distributions from an HSA were used exclusively for qualified medical expenses. This responsibility exists because HSA funds are tax-advantaged, and the IRS may audit accounts to ensure proper use.

In the event of an IRS audit, you will need to substantiate each expense. This requires keeping detailed records, such as itemized receipts for services and products purchased, and Explanation of Benefits (EOBs) statements from your health insurance provider. These documents demonstrate that the expense was incurred, that it was a qualified medical expense, and that it was not reimbursed from another source or taken as an itemized deduction on a tax return.

If HSA funds are used for expenses that do not qualify as medical expenses, the distributed amount becomes taxable income. Additionally, if the account holder is under age 65, disabled, or deceased, a 20% penalty applies to the non-qualified distribution. This means an individual could face both income tax and a substantial penalty on the misused funds.

Common examples of non-eligible expenses include general health items not for a specific medical condition, cosmetic procedures, or gym memberships not medically prescribed. If an ineligible expense is mistakenly paid with HSA funds, it is possible to correct the error by repaying the amount to the HSA. This repayment should ideally occur before filing your federal taxes for that tax year to avoid potential tax implications and penalties.

Records should be retained for at least three years from the date you filed the return, or longer if you maintain the account. Digital copies of receipts and EOBs are acceptable and can help ensure long-term preservation of these important documents.