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Health Savings Account Spending Guidelines

Health savings accounts offer many individuals and families a viable tool for reducing their health insurance costs while accumulating funds to pay for medical emergencies. Distributions from health savings accounts must abide by specific spending guidelines in order to maintain the favorable tax status associated with these accounts.

  1. Distributions

    • Many health savings accounts offer debit cards that account holders can use to pay qualified expenses. One of the biggest qualified expenses occurs when an individual needs medical care but has not reached the deductible stated by her high-deductible health plan. The individual has two options. She can pay the medical costs using the debit card, or she can pay the money and request a distribution from her health savings account. Any medical costs that contribute to the deductible qualify. Nonprescription medicines needed for medical reasons also qualify for tax-free health savings account spending but do not count toward the person's deductible.

    Insurance Premiums

    • Most insurance premiums do not qualify for health savings account spending benefits. However, certain insurance premiums do qualify and can be paid using funds from the individual's health savings account. These insurance premiums include long-term care insurance, COBRA coverage for individuals out of work, health care insurance for individuals receiving unemployment and Medicare costs for individuals age 65 or older.

    Health Care Recipient

    • Health savings account spending can only be used for specific individuals based on their relationship to the account holder. The account holder and his spouse qualify for spending from this account as do the dependents claimed on his tax return. Individuals whom the account holder could have claimed as a dependent also qualify, if the account holder did not claim the person for a specific reason. These reasons include the fact that the person filed a joint return, had gross income of $3,650 or that the account holder or his spouse could be claimed on another taxpayer's return.

    Nonmedical Expenses

    • Most account holders will incur a 10 percent penalty for spending money from their health savings account without using the money for medical expenses. Individuals older than age 65 can spend money from the account without incurring a penalty. In either case, the spender must pay income tax on the funds spent.

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