What Can You Use Your HSA Debit Card For?

A Health Savings Account (HSA) debit card offers a streamlined way to manage healthcare costs by providing direct access to funds held within an HSA. To qualify for an HSA, individuals must be enrolled in a high-deductible health plan (HDHP). Contributions to an HSA are tax-deductible, or if made through payroll, they are pre-tax, reducing taxable income. Funds within an HSA grow tax-deferred, meaning any interest or earnings are not taxed while held in the account. Withdrawals are tax-free, provided the money is used for qualified medical expenses. This triple tax advantage—tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for eligible expenses—makes the HSA a valuable financial tool for healthcare planning.

Understanding Eligible Expenses

Determining what constitutes an eligible medical expense for Health Savings Account (HSA) use is guided by Internal Revenue Code Section 213(d). Generally, these are costs incurred primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

Routine medical care, diagnostic services, and preventative care are commonly covered:

• Physician fees
• Specialist visits
• Hospital services
• Lab tests
• X-rays
• Annual physicals
• Screenings
• Vaccinations

Dental and vision care expenses are also typically eligible:

• Cleanings
• Fillings
• Extractions
• Braces
• Dentures
• Eye exams
• Contact lenses
• Eyeglasses
• Corrective eye surgery like LASIK

Prescription and many over-the-counter (OTC) medications and products are eligible:

• Prescription medications approved by the FDA
• Pain relievers
• Cold medicines
• Allergy medications
• Bandages
• Menstrual care products

Medical equipment and supplies necessary for treatment or alleviation of a condition are covered:

• Crutches
• Wheelchairs
• Blood sugar monitors
• Testing strips
• Hearing aids
• Breast pumps

Various therapies are recognized as eligible medical expenses:

• Physical therapy
• Occupational therapy
• Chiropractic care
• Mental health counseling
• Acupuncture

Certain health insurance premiums can be paid with HSA funds under specific circumstances. These include premiums for COBRA continuation coverage, qualified long-term care insurance (subject to age-based limits), and Medicare Part B and D premiums for individuals aged 65 and older.

Transportation expenses incurred primarily for obtaining medical care, such as mileage, taxi fares, or bus fares to and from appointments, are also eligible.

Practical Use of the HSA Debit Card

An HSA debit card functions much like a standard debit card, allowing for direct payment at the point of sale. This includes using the card at pharmacies, doctor’s offices, hospitals, and for online payments for eligible medical products and services.

Account holders should retain detailed records and receipts for all transactions made with the HSA debit card. These records serve as documentation to demonstrate the expense was qualified, which is crucial in the event of an IRS audit. A Letter of Medical Necessity may be required for certain items.

An HSA debit card might be declined if there are insufficient funds in the account or if the merchant’s category code does not align with healthcare services. If a card is declined, individuals can pay for the expense using personal funds and then reimburse themselves later from their HSA.

Navigating Ineligible Purchases and Compliance

Using HSA funds for expenses that do not meet the Internal Revenue Service (IRS) definition of a qualified medical expense carries specific tax implications. The responsibility for ensuring that all withdrawals are for eligible medical expenses rests solely with the account holder.

Several common expenses are generally not considered qualified medical expenses. These include general health-related items not tied to a specific medical condition, such as toiletries, cosmetics, and gym memberships. Most over-the-counter items that are not medications or menstrual care products, like toothpaste or soap, are also typically ineligible. Elective cosmetic surgery is not covered unless it is necessary to correct a deformity resulting from a congenital abnormality, personal injury, or disfiguring disease.

If funds are withdrawn from an HSA for a non-qualified expense, the amount withdrawn becomes subject to income tax. Furthermore, if the account holder is under the age of 65, an additional 20% penalty tax is generally imposed on the non-qualified withdrawal. Maintaining comprehensive records, including all receipts and documentation for HSA purchases, is crucial. The burden of proof for the eligibility of an expense rests with the account holder in the event of an audit. Should an ineligible withdrawal occur, it may be possible to correct the error by returning the funds to the HSA, which can help mitigate potential tax consequences.