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HSA Reimbursement Rules

A health savings account, or HSA, offers a tax-free way to save money to use for health-care costs. To be able to have an HSA, you must also have a high-deductible health insurance plan. Because you don't pay taxes on the money you put into an HSA, the federal government has strict rules on reimbursement.

  1. What is an HSA?

    • An HSA is a tax-free account from which you can draw to help pay for health-care expenses. As long as you use the money for qualified health-care expenses, you never pay taxes on it. The money carries over from year to year, can earn interest and you never have to take any distributions. To qualify for an HSA, you must be covered under a health plan that has an annual deductible of at least $1,200 for an individual or $2,400 for a family. You cannot have an HSA if someone can claim you as a dependent, nor can you have one if you are enrolled in Medicare. As of 2011, you can put up to $3,050 annually in your HSA if you have an individual health insurance plan, or $6,150 if you have a family plan.

    What it Pays For

    • You can take reimbursement from your HSA tax-free for any qualified medical expense. The Internal Revenue Service classifies qualified expenses as those that would normally qualify for a tax deduction. They include costs for doctor's appointments, hospital stays, diagnostic tests, mental health care, chiropractic care, prescription costs and medically necessary aids, such as wheelchairs and crutches. HSAs historically covered over-the-counter medications, but a law change for 2011 means those drugs are no longer covered unless a doctor prescribes them.

    What it Doesn't Pay For

    • In addition to over-the-counter medicines, there are a host of other medical-related expenses for which you cannot receive reimbursement from your HSA. These include cosmetic surgery, hair loss or hair transplant treatments, fitness club membership fees, teeth-whitening treatments, veterinary care and weight loss programs not prescribed by a doctor. You also cannot use your HSA funds to pay for insurance premiums, except in certain situations as noted in IRS Publication 969. If you receive reimbursement from your HSA for an expense that doesn't qualify, you will have to pay income tax on the money and, as of 2011, a 20 percent penalty.

    Who Can Receive Reimbursement

    • If your insurance plan covers only you, then you are the only one who may receive reimbursement from your HSA for qualified medical expenses. If you have an insurance plan that covers your entire family, however, then you may use your HSA to pay for expenses incurred by your spouse and any dependents you can claim on your income tax return, .

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