What Can I Use an HSA Debit Card For?

A Health Savings Account (HSA) is a tax-advantaged savings account for healthcare expenses. This account is available to individuals enrolled in a high-deductible health plan (HDHP), with lower premiums but higher deductibles. An HSA debit card provides a direct method for account holders to access tax-free funds for qualified medical costs. The card streamlines payments for healthcare services and products meeting IRS criteria.

Understanding Eligible Medical Expenses

HSA funds can be used for a broad range of IRS-defined medical expenses. These eligible expenses must be for the prevention or alleviation of a physical or mental defect or illness, including diagnosis, cure, mitigation, treatment, or prevention of disease. Coverage extends to the account holder, spouse, and dependents claimed on their tax return.

Eligible medical expenses include:
Fees for doctors, dentists, chiropractors, psychiatrists, and other medical practitioners.
Costs for hospital services, laboratory fees, and diagnostic tests like X-rays or MRI scans.
Prescription medications, including insulin.
Certain over-the-counter (OTC) medications and menstrual care products that became eligible without a prescription after the CARES Act of 2020.

Dental care expenses, like cleanings, fillings, extractions, and orthodontia, are eligible for dental disease prevention or treatment. Vision care covers eye exams, prescription eyeglasses, contact lenses, and contact lens solution. Mental health services, including therapy, counseling, and psychiatric care, are eligible medical expenses.

Qualified expenses also include:
Acupuncture, physical therapy, and certain long-term care services for chronically ill individuals.
Medical equipment, such as crutches, wheelchairs, or blood sugar monitors, along with supplies like bandages or testing strips.
Transportation primarily for medical care, including mileage to and from appointments, ambulance services, or necessary lodging for out-of-town medical treatment.
Certain long-term care insurance premiums, up to specific age-based limits.

Non-Eligible Expenses

Using an HSA debit card for non-qualified medical expenses can lead to tax implications. Distributions not used for eligible medical expenses are included in gross income and subject to an additional 20% penalty tax. This penalty applies unless the account holder is age 65 or older, becomes disabled, or dies.

Common non-eligible expenses include cosmetic procedures, like plastic surgery or teeth whitening, unless medically necessary to correct a deformity from a congenital abnormality, injury, or disease. General health supplements, vitamins, or nutritional products do not qualify unless prescribed to treat a specific medical condition. For example, a general multivitamin would not be eligible, but a specific iron supplement prescribed for anemia would be.

General health and wellness expenses, such as gym memberships, health club dues, or diet programs, are not eligible unless prescribed by a physician for a specific medical condition. Toiletries, such as toothpaste, soap, or shampoo, are not considered medical expenses. Reimbursed expenses from other sources, like a health insurance plan or another health reimbursement arrangement, cannot be paid with HSA funds to avoid double-dipping. Misuse of the HSA debit card for these non-eligible items can trigger an audit and result in unforeseen tax liabilities.

Record Keeping and Substantiation

Maintaining records for all HSA debit card transactions is an important account holder responsibility. The IRS does not require submitting receipts with tax returns, but account holders must prove distributions were for eligible medical expenses if requested. This documentation is important for IRS audits or HSA administrator inquiries requiring proof of a qualified expense.

Records should include receipts, invoices, and Explanation of Benefits (EOB) forms. These documents should show the date of service, provider, service/product received, and amount paid. For prescription medications, retain the prescription label or pharmacy receipt showing drug name and cost. This ensures funds are used appropriately and comply with tax regulations.

If an expense cannot be substantiated as eligible, or if the HSA debit card was used for a non-eligible expense, the amount becomes taxable income. A 20% penalty tax applies to unsubstantiated amounts if the account holder is under age 65 and not disabled. Therefore, record keeping is necessary to avoid unexpected tax burdens and maintain the HSA’s tax-advantaged status.

Citations

https://www.irs.gov/pub/irs-pdf/p502.pdf
https://www.hsabank.com/hsabank/resource-center/qualified-medical-expenses
https://www.irs.gov/publications/pub969
https://www.healthcare.gov/glossary/health-savings-account-hsa/
https://www.optumbank.com/support/hsa-tax-center/tax-form-1099-sa/hsa-record-keeping.html
https://www.fsa.usda.gov/FSA-Documents/Forms/recordkeeping_requirements.pdf