Eligible medical expenses that can be paid for with tax-free HSA withdrawals.

To qualify for tax-free withdrawals from a health savings account, a medically-related expense must meet the definition set forth in Section 213 (d) of the Internal Revenue Code. Below are two lists derived from Sec. 213(d); deductible and non-deductible medical expenses. Ordinarily, this list is used to determine whether any particular medical expense qualifies for a deduction when medical expenses are itemized. The same list is also used to determine which expenses are eligible for tax-free withdrawals from a health savings account.

If you hear little bells and whistles going off in your head, that's a good thing. Because yes, indeed, the HSA allows people to effectively by-pass the AGI threshold amount of medical expenses that must be incurred before a medical expense is allowed as an itemzed deduction. The "catch" with itemizing medical deductions, of course, is that no deduction is allowed unless qualified medical expenses exceed 7.5% of AGI (adjusted gross income). The deduction for contributions to a health savings account is, of course, "above the line," and is, therefore, made available without regard to A) whether you itemize any deductions, or B) whether you incur enough medical expenses to qualify for the medical expenses itemzed deduction (which is generally limited to 7.5% of AGI).

As it so happens, this was the topic of a special report I prepared while a graduate student, working toward my Master's in Financial & Tax Planning at San Diego State. A powerpoint presentation is available on this site that details this concept. Please click here for the HSA powerpoint presentation. (You can learn more about my educational background and professional experience by clicking on the link called "about us.")

About HSA-qualified insurance quotes. Our apologies, but for spacing purposes on this page, we deleted the graphic that makes it easy for you to get quotes for high deductible HSA insurance plans through our agency. Here is a quick link to Get HSA Insurance Quotes (new browser opens so you can stay on this page). Please remember, all of these technical nuances are meaningless if the premiums for a new high deductible plan are not attractive enough to you, or if you are unable to obtain an acceptable offer of coverage due to health-related issues. So please consider getting some quotes for the required high deductible plans, sooner rather than later. In fact, I recommend obtaining HSA insurance quotes before digging through all of the HSA-related technical details.

Here is the list of qualified medical expenses, which is always subject to change at the whim of the IRS. In general, you may withdraw funds from your health savings account on a tax-free basis to pay for any of the expenses listed as "deductible" or "eligible." And in case you're wondering whether you can use tax-free HSA dollars to pay for your health insurance premiums, the answer is found directly beneath this chart.

Deductible Medical Expenses (eligible for tax-free withdrawals
from a health savings account)

Non-Deductible Expenses (not eligible for tax-free HSA withdrawals)

• abdominal supports

• abortion

• acupuncture

• air conditioner (when

necessary for relief from an

allergy or for relief from

difficulty in breathing)

• alcoholism treatment

• ambulance

• anesthetist

• arch supports

• artificial limbs

• autoette (when used for

relief of sickness/disability)

• birth control pills (by

prescription)

• blood tests

• blood transfusions

• braces

• cardiographs

• chiropractor

• Christian Science

Practitioner

• contact lenses

• contraceptive devices

(by prescription)

• convalescent home (for

medical treatment only)

• crutches

• dental treatment

• dental x-rays

• dentures

• dermatologist

• diagnostic fees

• diathermy

• drug addiction therapy

• drugs (prescription)

• elastic hosiery

(prescription)

• eyeglasses

• fees paid to health

institute prescribed by

a doctor

• FICA and FUTA tax

paid for medical care

service

• fluoridation unit

• guide dog

• gum treatment

• gynecologist

• healing services

• hearing aids and

batteries

• hospital bills

• hydrotherapy

• insulin treatments

• lab tests

• lead paint removal

• legal fees

• lodging (away from home

for outpatient care)

• metabolism tests

• neurologist

• nursing (including board

and meals)

• obstetrician

• operating room costs

• ophthalmologist

• optician

• optometrist

• oral surgery

• organ transplant

(including donor’s expenses)

• orthopedic shoes

• orthopedist

• osteopath

• oxygen and oxygen

equipment

• pediatrician

• physician

• physiotherapist

• podiatrist

• postnatal treatments

• practical nurse for

medical services

• prenatal care

• prescription medicines

• psychiatrist

• psychoanalyst

• psychologist

• psychotherapy

• radium therapy

• registered nurse

• special school costs for

the handicapped

• spinal fluid test

• splints

• sterilization

• surgeon

• telephone or TV

equipment to assist the

hard-of-hearing

• therapy equipment

• transportation expenses

(relative to health care)

• ultra-violet ray treatment

• vaccines

• vasectomy

• vitamins (if prescribed)

• wheelchair

• x-rays

• advance payment for services to be

rendered next year

• athletic club membership

• automobile insurance premium

allocable to medical coverage

• boarding school fees

• bottled water

• commuting expenses of a disabled

person

• cosmetic surgery and procedures

• cosmetics, hygiene products and

similar items

• diaper service

• domestic help

• funeral, cremation or burial expenses

• health programs offered by resort

hotels, health clubs, and gyms

• illegal operations and treatments

• illegally procured drugs

• maternity clothes

• nonprescription medication

• premiums for life insurance, income

protection, disability, loss of limbs,

sight or similar benefits

• Scientology counseling

• social activities

• special foods or beverages

• specially designed car for the

handicapped other than an autoette

or special equipment

• stop-smoking programs

• swimming pool

• travel for general health improvement

• tuition and travel expenses a problem

child to a particular school

• weight loss programs (subject to change under new IRS guidelines)

 

Of note: HSA funds may not be used to pay for health insurance premiums. There are three exceptions. HSA funds may be used to pay for:

  1. a health plan during any period of continuation coverage required under any federal law (i.e. COBRA, etc.),
  2. a qualified long-term care insurance contract, and
  3. a health plan during a period in which the individual is receiving unemployment compensation under any federal or state law.

For more detailed information, please refer to IRS Publication 502 entitled, “Medical and Dental Expenses” for the most up-to-date list of eligible expenses. (See page entitled "Other HSA Info" for convenient links to IRS publications.)

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