Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are two valuable tools that help individuals save money on healthcare costs. They both allow you to use pre-tax dollars for medical expenses, but there are specific rules about what qualifies as an eligible expense under each plan. Understanding what you can and can’t pay for with these accounts is essential to making the most of your contributions and ensuring compliance with IRS regulations.
What Are HSAs and FSAs?
Before diving into eligible expenses, it’s important to first understand the basic differences between an HSA and an FSA.
Health Savings Accounts (HSAs) are available to individuals enrolled in high-deductible health plans (HDHPs). They offer a triple tax advantage: contributions are tax-deductible, the funds grow tax-free, and withdrawals used for qualified medical expenses are also tax-free. HSAs are a long-term savings vehicle, allowing funds to roll over year after year.
Flexible Spending Accounts (FSAs) are employer-sponsored accounts that allow employees to contribute pre-tax dollars to cover medical and dependent care expenses. Unlike HSAs, FSAs are subject to a “use-it-or-lose-it” rule, meaning any unused funds by the end of the plan year may be forfeited. FSAs are more commonly used for short-term medical expenses but can also be used for dependent care costs.
Eligible Expenses for HSAs and FSAs
Both HSAs and FSAs have guidelines for what qualifies as a “qualified medical expense” and what does not. The IRS provides a comprehensive list of eligible expenses, which includes medical services, treatments, and products. Here’s a breakdown of some common eligible expenses:
Doctor’s Visits and Medical Services
Both HSAs and FSAs cover costs related to doctor visits, including consultations, exams, and medical procedures. If you need medical treatment from a physician, specialist, or surgeon, these costs are typically covered. This includes routine check-ups, diagnostic tests, and even treatments for chronic conditions.
Prescription Medications
Prescription medications are eligible expenses for both HSAs and FSAs. If your doctor prescribes a medication for a condition, it can be paid for with your HSA or FSA funds. Over-the-counter (OTC) medications, however, generally require a prescription to qualify for coverage under these accounts, as the rules around OTC items were updated by the IRS in recent years.
Dental and Vision Care
Dental care, including routine cleanings, fillings, and more extensive dental treatments, are eligible expenses. Vision care expenses, such as eye exams, prescription eyeglasses, and contact lenses, can also be paid for with HSA or FSA funds. Laser eye surgery, such as LASIK, is another qualified medical expense under both accounts.
Mental Health Services
Therapy sessions, counseling, and other mental health treatments are considered eligible expenses for both HSAs and FSAs. This includes expenses for seeing a licensed therapist, psychologist, or psychiatrist. If prescribed by a healthcare provider, services like marriage counseling or addiction treatment may also be eligible.
Chiropractic and Acupuncture Treatments
Chiropractors and acupuncturists are recognized healthcare providers, and their services are eligible for coverage under both HSAs and FSAs. This includes treatments for pain management and other therapeutic services offered by licensed practitioners.
What You Can’t Pay for with HSAs and FSAs
While HSAs and FSAs offer extensive coverage for medical expenses, there are also restrictions on what you can use these funds for. Understanding ineligible expenses can help avoid costly mistakes.
Cosmetic Procedures
Cosmetic treatments that are not medically necessary are generally not covered by HSAs or FSAs. This includes elective surgeries like Botox, tummy tucks, breast augmentations, and other procedures aimed at enhancing appearance rather than treating a medical condition. However, some procedures, such as reconstructive surgery following an accident or disease, may be eligible.
Health Insurance Premiums
In most cases, you cannot use your HSA or FSA funds to pay for regular health insurance premiums. However, there are exceptions. For instance, if you are receiving long-term care or are using COBRA to continue coverage, those premiums may qualify. Additionally, some exceptions exist for premiums related to Medicare, which can be paid for using an HSA once you reach age 65.
Over-the-Counter Products (Without Prescription)
Most over-the-counter (OTC) items, such as pain relievers, cold medications, and vitamins, are not eligible unless prescribed by a healthcare provider. The IRS updated this rule in 2020, allowing some OTC medications like pain relievers, allergy medications, and cold treatments to qualify for payment with HSAs and FSAs, but only with a prescription.
Non-Medical Expenses
HSAs and FSAs are strictly for medical expenses. This means that items like gym memberships, weight loss programs, and non-prescription vitamins are generally not eligible. However, certain medical weight loss programs, such as those prescribed for managing obesity, may be eligible if documented properly by your healthcare provider.
Conclusion
Understanding what you can and can’t pay for with HSAs and FSAs is crucial to maximizing the benefits of these accounts and ensuring you stay compliant with IRS regulations. Both accounts offer significant tax advantages, but misusing funds for ineligible expenses can lead to penalties and tax issues. By carefully planning and using these accounts for qualified medical expenses, you can save money on taxes while covering your healthcare needs.
Whether you’re using an HSA for long-term healthcare savings or an FSA for short-term expenses, having a clear understanding of eligible and ineligible expenses is key to making the most of these accounts. Always keep track of receipts, and when in doubt, consult the IRS guidelines or a tax professional to ensure you’re using your HSA or FSA appropriately.