What HSA money covers

A Health Savings Account covers medical, dental, and vision expenses that you would otherwise pay out of pocket. The IRS publishes a list of may have access to medical expenses, and if an expense is on that list, you can pay for it with HSA funds without owing income tax on the withdrawal. If it is not on the list, you can still withdraw the money, but you will owe income tax plus a 20 percent penalty.

The key word is "may have access to." Not every health-related purchase counts. Gym memberships, cosmetic surgery, and over-the-counter vitamins (unless prescribed by a doctor) do not may have access to. But insulin, prescription glasses, dental crowns, physical therapy, and copays all do. The difference matters because it determines whether you can use HSA money tax-free or whether the withdrawal costs you extra.

You do not have to spend HSA money in the year you contribute it. Unlike a Flexible Spending Account (FSA), an HSA rolls over year to year. Money you do not use stays in the account and grows tax-free, which is why some people treat it as a retirement savings tool once their immediate medical bills are paid.

Key Takeaways

  • HSA funds cover copays, deductibles, prescriptions, dental work, vision care, and medical equipment like crutches or hearing aids without triggering income tax.
  • Over-the-counter items like pain relievers, cold medicine, and vitamins do not may have access to unless a doctor writes a prescription for them.
  • Cosmetic procedures, gym memberships, and general wellness products are not covered, even if they relate to health.
  • Withdrawing money for non-may have access to expenses costs you income tax plus a 20 percent penalty, so it is worth checking the IRS list before you spend.
  • HSA money rolls over year to year and never expires, so you can save it for future medical costs or retirement.

Medical expenses that may have access to

may have access to medical expenses include anything your doctor orders or prescribes to diagnose, treat, or prevent disease. This covers doctor visits, lab tests, X-rays, surgery, and hospital stays. It also covers the cost of prescription medications, insulin, and inhalers. If your doctor refers you to physical therapy, occupational therapy, or mental health counseling, those sessions may have access to too.

Medical equipment and supplies count as long as they treat a diagnosed condition. Crutches, wheelchairs, hearing aids, continuous positive airway pressure (CPAP) machines, and blood glucose monitors all may have access to. Bandages, casts, and compression stockings may have access to. Prescription eyeglasses and contact lenses may have access to. If your doctor prescribes a specific brand of shoe insert for flat feet, that qualifies. Generic shoe inserts for comfort do not.

Dental and vision care are fully covered. Root canals, fillings, crowns, braces, and teeth cleaning all may have access to. Eye exams, prescription glasses, contact lenses, and laser eye surgery (LASIK) all may have access to. Dental implants and dentures may have access to. Orthodontia for children and adults qualifies.

Over-the-counter items and the prescription rule

Most over-the-counter medications and supplies do not may have access to unless a doctor writes a prescription for them. Aspirin, ibuprofen, acetaminophen, cold medicine, allergy medicine, and antacids do not may have access to on their own. But if your doctor writes a prescription for ibuprofen or any OTC drug, then you can pay for it with HSA funds tax-free. The prescription itself is what makes it may have access to, not the medication.

Vitamins and supplements do not may have access to, even if they are expensive or medically recommended. A doctor can recommend fish oil or vitamin D, but that recommendation alone does not make it a may have access to expense. The same rule applies to probiotics, protein powders, and herbal remedies. If a doctor prescribes a specific vitamin or supplement to treat a diagnosed deficiency, check with your HSA administrator before spending, because the rules can vary by plan.

First aid supplies like bandages, gauze, and antiseptic cream do not may have access to. Sunscreen does not may have access to. Toothpaste and mouthwash do not may have access to. Feminine hygiene products do not may have access to. These are considered general wellness or personal care items, not medical treatment.

What does not may have access to, even if it feels medical

Cosmetic procedures do not may have access to, even if they are performed by a doctor. Botox, dermal fillers, hair transplants, and teeth whitening do not may have access to. Liposuction and breast augmentation do not may have access to. The rule is that the procedure must treat a disease or injury, not improve appearance. If you have reconstructive surgery after an accident or cancer treatment, that qualifies because it treats an injury or disease, not because it improves how you look.

Gym memberships, fitness classes, and sports equipment do not may have access to, even if your doctor recommends exercise. A doctor can tell you to walk more or join a gym, but the gym membership itself is not a may have access to expense. However, if your doctor prescribes physical therapy at a clinic, that clinic visit qualifies.

Meals and lodging do not may have access to, even if you are traveling for medical treatment. If you fly to another state for surgery, the flight and hotel are not covered. The surgery itself is covered, but not the travel or accommodation. The exception is if you are an inpatient in a hospital or care facility—then meals and lodging as part of that inpatient stay are covered.

How to know if something qualifies

The IRS maintains a list of may have access to medical expenses in Publication 502. Your HSA administrator (the bank or financial company that holds your account) also publishes a list of common may have access to and non-may have access to expenses. Before you spend HSA money on something you are unsure about, contact your administrator or check their website. Many administrators have a search tool where you can type in an expense and see whether it qualifies.

Keep receipts and documentation for everything you buy with HSA funds. If the IRS audits your account, you will need to show that the money went to may have access to expenses. The receipt should show what you bought, the date, and the amount. For prescription items, the receipt should show the prescription number or the doctor's name.

If you are not sure whether an expense qualifies and you withdraw the money anyway, you can still correct it. If you realize within a certain timeframe that you made a mistake, some HSA administrators allow you to return the money to the account and avoid the tax and penalty. Ask your administrator about their correction policy before you withdraw.

Dependent care and long-term care expenses

Dependent care does not may have access to for HSA withdrawals. Daycare, babysitting, and after-school care do not may have access to, even though they are necessary expenses for working parents. This is a common source of confusion because there is a separate account called a Dependent Care FSA that does cover childcare, but an HSA does not.

Long-term care insurance premiums may may have access to, but only up to certain limits that change each year. If you are paying for a nursing home or assisted living facility, the cost does not may have access to unless it is part of a long-term care insurance policy. The rules are specific and vary by age, so check with your HSA administrator or a tax professional if you are considering this.

Frequently Asked Questions

Can I use HSA money to pay my health insurance premium?

No, regular health insurance premiums do not may have access to. However, you can use HSA funds to pay premiums for long-term care insurance (up to age-based limits) and for health insurance while you are receiving unemployment benefits. You cannot use HSA money for your employer's health plan premium or a marketplace insurance premium.

Do copays and deductibles count as may have access to expenses?

Yes. Copays, coinsurance, and deductibles all may have access to as long as they are for a covered medical service. If your plan requires a $50 copay for a doctor visit, you can pay that copay with HSA funds tax-free. The same applies to deductibles you have not yet met.

What happens if I withdraw HSA money for something that does not may have access to?

You will owe income tax on the withdrawal amount plus a 20 percent penalty. If you withdraw $500 for a non-may have access to expense and you are in the 22 percent tax bracket, you will owe $110 in taxes plus $100 in penalty, for a total of $210. The penalty does not apply after age 65, but you still owe income tax.

Can I use HSA money for my spouse's medical expenses?

Yes, as long as your spouse is claimed as a dependent on your tax return. You can pay for your spouse's doctor visits, prescriptions, dental work, and other may have access to medical expenses using your HSA funds. The money does not have to be in your spouse's name.

Are prescription glasses and contacts fully covered?

Yes. Prescription eyeglasses, contact lenses, and the cost of an eye exam all may have access to. You can also use HSA funds for LASIK surgery and other vision correction procedures. Non-prescription sunglasses do not may have access to, but prescription sunglasses do.