What Can You Use an HSA Debit Card For?

A Health Savings Account (HSA) debit card provides a convenient way to pay for healthcare expenses. This specialized debit card is directly linked to an individual’s Health Savings Account, which is a tax-advantaged savings account established for those with a high-deductible health plan (HDHP). Its primary purpose is to facilitate tax-free payments for qualified medical expenses, offering a streamlined method for managing healthcare costs.

Qualifying Medical Expenses

The Internal Revenue Service (IRS) defines what constitutes a “qualified medical expense” for HSA purposes. These are costs incurred primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any function or part of the body. The authoritative source for a comprehensive list of eligible expenses is IRS Publication 502, “Medical and Dental Expenses.”

Many healthcare services and products fall under this IRS definition. Qualified expenses typically include:

• Doctors’ visits, hospital stays, and prescription medications.
• Dental care, such as cleanings, fillings, and orthodontia.
• Vision care, including eye exams, eyeglasses, and contact lenses.
• Specific medical equipment like crutches.
• Mental health services, such as psychiatric care and therapy.
• Over-the-counter medications and items, including insulin, bandages, and diagnostic devices.
• Certain long-term care services and insurance premiums, within specified limits.

Non-Qualifying Expenses

It is important to understand which expenses are not eligible for payment with an HSA debit card, as using funds for non-qualified items can lead to penalties. Generally, expenses that are merely beneficial to general health, rather than for the treatment or prevention of a specific medical condition, are excluded. For instance, cosmetic procedures performed solely for aesthetic reasons, and not to correct a deformity, are typically not covered.

Many general health items, such as vitamins for overall wellness, toiletries, or standard gym memberships, are usually not considered qualified medical expenses. While some insurance premiums, like those for COBRA or Medicare Parts B and D after age 65, can be eligible, most other insurance premiums are not.

Important Considerations for Use

Maintaining meticulous records for all HSA transactions is crucial for compliance. Account holders should keep detailed receipts and Explanation of Benefits (EOBs) for every purchase made with the HSA debit card. These records serve as documentation in case the HSA administrator or the IRS requests substantiation of expenses. It is advisable to retain these documents for at least three years after filing the income tax return, or longer if the account is maintained.

Using the HSA debit card for expenses not deemed qualified by the IRS carries specific financial implications. If the account holder is under age 65, such misuse results in a 20% penalty on the amount withdrawn. In addition to this penalty, the misused funds are considered taxable income and must be reported as such. The HSA can be used to cover qualified medical expenses for the account holder, their spouse, and any qualified dependents.