Health Savings Accounts are a smart way to save money for
health-related expenses,and the money you save is also tax-deferred. They are a
great option for anyone with a high-deductible health insurance plan and no
other primary medical coverage. The money you save, if unused during the year,
rolls over and remains available for use any time medical expenses are
incurred. The ability to spend money from the account on qualified medical
expenses as needed is another great benefit of these accounts; the money that
is withdrawn for that purpose is also not taxable. It is important to use the
account responsibly, as funds from an HSA that are used for "other” expenses
not only become taxable, but will also incur a hefty 20% penalty. So what is
considered a Qualified Medical Expense, and how can you be sure that you are
within IRS guidelines when using money from your HSA?
When in doubt, the easiest way to find information about
your HSA is to read the publication (updated annually) from the IRS that deals
specifically with qualified
medical expenses. But in general, most medical services and procedures, as
well as prescriptions and other related items are considered qualified. Some
qualified medical expenses you may not have considered as eligible include:
- Acupuncture treatments·
- Alcoholism treatment programs, including
transportation to and from AA meetings if your doctor has advised that such
meetings are essential to treat a disease pursuant to excessive drinking.
- Chiropractic care
- Contact lenses, eyeglasses and eye exams, as
well as eye surgery such as cataract surgery or laser eye surgery to correct
- Hearing aids – including batteries and
- Weight-loss programs – but only if your doctor
has advised you to lose weight due to a specific medical condition such as
hypertension or diabetes. Check the IRS publication carefully here as there are
restrictions and limits in this category.
- Lead-Based Paint Removal – if your child has had
lead poisoning because of lead-based paint in your home, you can pay for the
cost of removing the lead-based paint directly from your HSA.
- Prescription drugs, insulin and over-the-counter
medications that were prescribed by a physician – this rule has recently
changed. Prior to 2011, over-the-counter medications were eligible as a
qualified medical expense, but this is no longer the case (with the exception
of insulin) unless the medication was prescribed.
Since money from a Health
Savings Account can be used as needed by the account holder,
important to keep good records of your expenditures throughout the year. This
documentation will assist with filling out the needed tax forms related to the
account, as well as proof that each expenditure was medically necessary and on
the list of qualified medical expenses. There are over 80 different categories
of expenses considered qualified, from guide dog expenses to television and
telephones equipped with technology for the hard of hearing. When in doubt,
always double-check the IRS publication before using your HSA funds to pay for
a specific expense!And make sure you are looking at current information, as the
list does change from year to year.
Don’t have a Health Savings Account? They are
quickly becoming a very wise choice for anyone with a high-deductible health insurance
plan. Contact your local banker to discover whether opening an HSA
right for you.