Where Can I Spend HSA Money? A List of Qualified Expenses

A Health Savings Account (HSA) provides a tax-advantaged way to manage healthcare costs. Funds contributed to an HSA are not subject to federal income tax at the time of deposit, and the money can grow tax-free. HSAs offer a unique opportunity to save for current and future medical expenses, with funds rolling over year to year if not spent. The account is owned by the individual, offering portability even when changing employers.

Understanding Eligible Medical Expenses

Health Savings Accounts can be used to pay for a wide range of qualified medical expenses, encompassing various aspects of healthcare. The Internal Revenue Service (IRS) defines these as costs primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any part or function of the body. You can use your HSA for eligible healthcare, dental, and vision expenses for yourself, your spouse, or eligible dependents.

Common medical expenses covered include doctor visits, hospital stays, diagnostic services like X-rays and lab fees, and prescription medications. Ambulance services, crutches, wheelchairs, and hearing aids are also eligible. Certain over-the-counter (OTC) medications and menstrual care products became eligible expenses as of January 1, 2020, thanks to the CARES Act, including acetaminophen, allergy medications, cold and cough medicines, and pain relievers.

Dental care expenses are broadly covered by HSAs, ranging from routine cleanings, exams, and X-rays to more extensive procedures. This includes fillings, extractions, root canals, crowns, and dentures. Orthodontic treatments like braces and even dental implants are also generally eligible, especially if used to treat a dental disease or improve function.

Vision care is another significant category for HSA use. You can use HSA funds for eye exams, prescription eyeglasses, contact lenses, and contact lens solutions. Corrective eye surgeries, such as LASIK, are also considered qualified medical expenses. These funds can help cover out-of-pocket costs not fully covered by vision insurance.

Qualified long-term care services and certain long-term care insurance premiums may also be paid with HSA funds. Specific limits apply to long-term care insurance premiums based on age, and reimbursements exceeding these limits may be taxable and subject to penalties.

Expenses Not Covered by HSA

Certain expenses are generally not eligible for reimbursement. These exclusions are in place to ensure funds are used for legitimate medical needs rather than general wellness or cosmetic enhancements. Understanding these limitations is important to avoid tax penalties.

Cosmetic procedures are typically not covered by HSA funds if their primary purpose is to improve appearance without promoting proper body function or treating an illness. This includes procedures like face lifts, hair transplants, teeth bleaching, and liposuction when performed solely for aesthetic reasons. However, if a cosmetic procedure is medically necessary to correct a deformity resulting from a congenital abnormality, injury, or disfiguring disease, it may be eligible.

General health items and supplements are also usually not eligible. This category includes items like vitamins, herbal supplements, and hygiene products, unless prescribed by a medical practitioner to treat a specific diagnosed condition. Weight-loss programs or health club memberships are generally not covered unless a physician prescribes them to treat a diagnosed medical condition. Expenses reimbursed by another health plan are not eligible for HSA reimbursement.

How to Use Your HSA Funds

Accessing and utilizing your HSA funds for qualified medical expenses offers flexibility. Regardless of the method chosen, the expense must be a qualified medical expense incurred after your HSA was established.

Many HSA providers issue a dedicated debit card, which can be used directly at the point of service, similar to a regular debit or credit card. This offers a convenient way to pay for eligible expenses at doctor’s offices, pharmacies, or other healthcare providers.

You can also pay for expenses out-of-pocket and then reimburse yourself from your HSA. There is no deadline for reimbursing yourself for past qualified medical expenses, as long as the expense was incurred after your HSA was established and has not been reimbursed by another source.

Some HSA providers also allow for direct payments from your account to a healthcare provider. When choosing to pay out-of-pocket and reimburse yourself, it is important to keep meticulous records of all expenses. This ensures that you can justify the withdrawals if ever questioned by the IRS.

Maintaining Records for Your HSA

Maintaining thorough records for all HSA transactions is a crucial responsibility. This documentation is essential for tax purposes and can be vital in the event of an IRS audit. Since you are ultimately responsible for proving the eligibility of your withdrawals, diligent record-keeping helps avoid potential penalties.

Key documents to retain include receipts for all services and products purchased with HSA funds, invoices from healthcare providers, and Explanation of Benefits (EOB) statements from your health insurer. It is also advisable to keep your HSA account statements, which detail contributions, withdrawals, interest earnings, and fees.

The IRS may audit HSA distributions, and without proper documentation, withdrawals for non-qualified expenses can be subject to federal income tax and a 20% penalty. It is recommended to keep HSA documentation for at least three years after filing your income tax return, or longer if you maintain the account. Organizing these records, whether physically or digitally, can simplify the process of verifying expenses if needed.