Use the money in the account to pay for any “qualified medical expense” permitted under federal tax law. This includes most medical care and services, dental and vision care, and also includes over-the-counter drugs such as aspirin.
Generally money cannot be used to pay for medical insurance premiums, except under specific circumstances, including:
- Any health plan coverage while receiving federal or state unemployment benefits.
- COBRA continuation coverage after leaving employment with a company that offers health insurance coverage.
- Qualified long-term care insurance.
- Medicare premiums and out-of-pocket expenses, including deductibles, co-pays, and coinsurance for:
- Part A (hospital and inpatient services)
- Part B (physician and outpatient services)
- Part C (Medicare HMO and PPO plans)
- Part D (prescription drugs)
Money in the account can be used to pay for medical expenses
the individual, the spouse, or the dependent children.
Expenses of the spouse and dependent children can be
paid for even if they are not covered by the HDHP.
Any amounts used for purposes other than to pay for “qualified medical expenses” are taxable as income and subject to an additional 10% tax penalty. Examples include:
- Medical expenses that are not considered “qualified medical expenses” under federal tax law (e.g., cosmetic surgery).
- Other types of health insurance unless specifically described above.
- Medicare supplement insurance premiums.
- Expenses that are not medical or health-related.
After age 65, the 10% additional tax penalty no longer applies. If disabled and/or enrolled in Medicare, the account can be used for other purposes without paying the additional 10% penalty.
Next: Advantages of HSAs
Previous: Determining Your Contribution
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