Health Savings Accounts IRS Guidelines

How Can You Use Your HSA Funds? For favorable tax treatment, the funds in your Health Savings Account must be used for qualified expenses, including:

  • Medical expenses, such as doctor visits, prescriptions, dental care or transportation to get medical care
  • Long-term care insurance
  • Health care coverage when unemployed
  • Certain continuation-of-benefit health care coverage
  • Certain health insurance after age 65

If you use your HSA funds for non-qualified expenses, the withdrawal is subject to federal taxes and a 20 percent federal penalty, unless the account owner is 65 or older, dies or is disabled.

Medical care expenses include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, and for treatments affecting any part or function of the body. The expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Expenses solely for cosmetic reasons generally do not qualify. Also, expenses that merely benefit your general health (for example, vacations) do not qualify.

Note that HSA funds can no longer be used for over-the-counter medication, except in limited circumstances; check with your tax advisor for details.

For more information, see IRS Publication 502.

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