A Health Savings Account (HSA) can be used for qualified medical expenses not covered by insurance, including prescription drugs, dental treatments, vision care, and certain over-the-counter items with a doctor's note. Funds roll over annually and grow tax-free when invested.
HSAs are paired with high-deductible health plans (HDHPs). You contribute pre-tax dollars through payroll deduction or direct deposit. Withdrawals for non-medical purposes before age 65 incur a 20% penalty and income tax. After 65, withdrawals are taxed as ordinary income but without penalty.
The IRS defines eligible expenses in Publication 502. These include doctor visits, insulin, hearing aids, and mental health therapy. Some costs, like gym memberships or vitamins, are not eligible unless prescribed for a specific medical condition.
Contributions to an HSA are made before federal income taxes. For 2024, the maximum contribution is $4,550 for individuals and $9,100 for families. Individuals aged 55 and older can contribute an additional $1,000 catch-up amount.
Funds accumulate over time. If you don't spend them, they grow via investment options offered by most HSA providers. The IRS allows up to 100 investment choices in some accounts, with low fees and diversified funds.
Withdrawals for qualified medical expenses are tax-free. You must keep receipts or records to prove eligibility. The IRS requires documentation for audits, especially for large or unusual claims.
Below is a list of common expenses covered under IRS guidelines. Not all are obvious.
| Eligible Expense | Examples | Notes |
|---|---|---|
| Prescription medications | Insulin, blood pressure meds, statins | Must be prescribed; OTC drugs require a doctor's note |
| Dental care | Cleanings, fillings, orthodontia, implants | Orthodontia is eligible for children and adults |
| Vision services | Glasses, contact lenses, LASIK surgery | LASIK qualifies only if medically necessary |
| Over-the-counter items | Pain relievers, antacids, allergy medicine | Only eligible with a written prescription |
| Mental health care | Therapy sessions, psychiatric medication | Includes telehealth visits |
Non-eligible expenses include cosmetic surgery, fitness trackers, and general wellness products. A gym membership is not eligible unless prescribed for a diagnosed condition like diabetes or heart disease.
Some people assume HSA funds can cover health insurance premiums. They cannot, except in specific cases: long-term care insurance, COBRA continuation coverage, and Medicare premiums after age 65.
Many believe HSA funds can be used for "general health" purchases. This is incorrect. Only expenses listed in IRS Publication 502 qualify. Using funds for non-qualified items triggers a 20% penalty and income tax.
Another misconception is that HSA funds expire. They do not. Unused balances carry forward indefinitely. Over 40 million Americans have active HSAs, and the average balance was $4,800 in 2023, according to the Employee Benefit Research Institute.
Some think HSA contributions count toward the deductible. They do not. Contributions reduce taxable income but do not lower your HDHP deductible. You still pay out-of-pocket until the deductible is met.
Sarah, a 38-year-old teacher with a high-deductible plan, contributes $3,500 annually to her HSA. In January, she pays $220 for a prescription for lisinopril, a blood pressure medication. She submits the receipt to her HSA provider and withdraws $220 tax-free.
In March, she gets a dental cleaning ($150) and a filling ($300). She uses her HSA card at the clinic. The $450 is deducted from her account and treated as a qualified expense.
In June, she buys $80 in ibuprofen from a pharmacy. She presents a doctor's note stating it's needed for chronic back pain. The transaction clears as eligible. Without the note, it would not qualify.
By year-end, Sarah has spent $770 from her HSA. Her remaining balance grows tax-free. She plans to use the rest for future eye surgery.
Using HSA funds for non-qualified expenses results in a 20% penalty and income tax on the withdrawn amount. For example, buying a $100 protein shake with HSA money triggers a $20 penalty and adds $100 to taxable income.
Even if you're reimbursed later, the original withdrawal remains subject to penalty unless corrected within 60 days. Reimbursement must be documented and reported to the IRS.
Some employers offer HSA matching. For example, a company may match 50% of employee contributions up to $1,000. This is not taxable income to the employee and increases the account balance.
hsa can be used for what? Qualified medical expenses only. This includes prescriptions, dental work, vision care, and OTC items with a prescription. Non-eligible uses trigger penalties and taxes.