According to IRS regulations, a Health Savings Account (HSA) can be used to pay several qualified medical, dental and vision expenses. These accounts, which are funded by pre-tax wages, are owned by the employee so they roll over and any money not spent will accumulate from year to year. Here’s a breakdown of the expenses that can be covered using your HSA.
IRS HSA Rules
The IRS allows expenses involved in the diagnosis, treatment, cure, or prevention of disease that affects any function or body part. This includes any practitioners, equipment, diagnostic devices and supplies that might be necessary. It can also be used to cover insurance premiums, prescriptions, and transportation expenses. You can find a complete explanation of HSA Rules in IRS Publication 502. In addition to the Health Savings Account being funded by pre-tax dollars, 1040 Schedule A allows for a deduction of some of your eligible medical expenses. According to Publication 502, if you and your spouse are below the age of 65 you can deduct eligible medical expenses that exceed 10% of your AGI (adjusted gross income). If either you or your spouse is over the age of 65, the deduction is for everything exceeding 7.5% of your adjusted gross income.
HSA Eligible Expenses
IRS tax code 213(d) defines which medical expenses are eligible for HSA use. There are hundreds of IRS approved expenses for which your Health Savings Account can be used to pay. It can also be used to pay the expenses of your spouse or dependents. There are several categories of HSA eligible expenses.
Included in this category are visits to your primary care practitioner and certain specialized providers or hospital services. It can also involve such expenses as treatment programs, medical equipment, and transportation costs. Some examples of expenses that would fall under this category are:
- Physical exams
- Flu shots and immunizations
- Chiropractic care
- Fertility treatments
- Organ transplants
- Hospital room and board
- Physical therapy
- Alcoholism/drug addiction treatment
- Hearing aids
This may include eye examinations or surgery. Therapeutic eye drops and all correction materials, such as glasses, contacts and related materials, could also be counted under vision expenses.
Only non-cosmetic dental costs can be included as HSA eligible expenses. Certain repairs, for instance, fillings, extractions or dentures, can fall under this category. Crowns and orthodontia can also be eligible if they’re for functional problems rather than appearance only.
Prescription Drug Expenses
Any legally obtained prescription medications and supplies would fall under this category, according to HSA rules. As with other categories, these should be for therapeutic, rather than cosmetic, purposes.
Over-the-Counter Drug Expenses
There are many over-the-counter drugs and supplies that can be paid for with funds from your health savings account. However, new regulations were put in place in 2010 that require a doctor’s prescription before these costs can be HSA eligible. These regulations were included in the Affordable Care Act (ACA) which were signed into law by President Obama.
Medications and Supplies that Don’t Require a Prescription
Insulin and other diabetic supplies are among those that don’t require a prescription to be eligible. First aid supplies, braces, and walkers can also be expensed without submitting a letter or prescription from your doctor. Such supplies as family planning items, contact lens solution, and denture adhesives would also fall under this category of expenses.
Expenses That Aren’t Eligible
As a general rule, supplies that are beneficial to general health, but not medically necessary, cannot be paid for using these funds. Some examples of ineligible items include:
- Exercise equipment
- Cosmetic surgery
- Fitness programs
- Toothpaste and other oral health care items
- Maternity clothes
- Skin moisturizers
- Funeral expenses
Summing it up
It’s important to note that the rules governing HSA expenses, what can and can’t be deducted, can be confusing. Whenever you have doubts about a particular expense, it’s best to contact your tax advisor directly to verify eligibility because there are tax penalties in place for people who try to include ineligible items. Careful planning is necessary for the proper management of your Health Savings Account funds.