Medical expenses you can pay for with HSA funds

Your HSA can pay for most things a doctor prescribes or a medical professional charges you for. This includes doctor visits, hospital stays, surgery, dental work, vision care, mental health treatment, and prescription medications. You can also use HSA money for medical equipment like wheelchairs, crutches, hearing aids, and blood pressure monitors — as long as a doctor says you need them for a medical condition.

The IRS publishes a list of what counts as a medical expense, and it's longer than most people expect. Therapy sessions, X-rays, lab tests, physical rehabilitation, and even some over-the-counter items like bandages, pain relievers, and allergy medicine are covered. The key rule is that the expense must be for diagnosis, treatment, or prevention of a medical condition — not for general health or wellness.

Dental and vision expenses are fully covered by HSA funds. This means cleanings, fillings, root canals, crowns, glasses, contact lenses, and eye exams all count. Orthodontia (braces) is also allowed. Many people use their HSA specifically for these costs because dental and vision insurance often has high out-of-pocket limits.

Key Takeaways

  • HSA funds cover doctor visits, hospital care, prescription medications, dental work, and vision care when a medical condition requires them.
  • Over-the-counter medical items like bandages, pain relievers, and allergy medicine are covered, but you need to keep receipts showing what you bought.
  • Gym memberships, cosmetic procedures, and general wellness products are not covered, even if they improve your health.
  • You can use HSA money to pay your insurance deductible, copays, and coinsurance, but not your monthly insurance premiums (with rare exceptions).
  • If you use HSA funds for something that doesn't count as a medical expense, you owe income tax on that amount plus a 20 percent penalty.

Over-the-counter items you can and cannot buy

Over-the-counter medications and medical supplies are covered by HSA funds, but the rules changed in 2020. You can now buy pain relievers, cold medicine, allergy medicine, antacids, and similar items without a doctor's prescription. You can also buy first aid supplies, bandages, thermometers, and heating pads.

The catch is that you need to keep your receipt and be able to show what you purchased. If you buy a bottle of ibuprofen at the pharmacy, the receipt needs to show "ibuprofen" or "pain reliever," not just a total from the store. Many HSA account holders keep receipts in a folder or take photos with their phone for this reason.

Items that look medical but don't count include vitamins (unless prescribed by a doctor for a specific deficiency), supplements, cosmetics, sunscreen for general use, and personal hygiene products like toothpaste and shampoo. The difference is whether the item treats or prevents a medical condition versus whether it's just part of staying clean or healthy.

Insurance costs you can and cannot cover

You can use HSA money to pay your insurance deductible, copays, and coinsurance — the portion of a medical bill you're responsible for after insurance pays its share. This is one of the most common uses for HSA funds. If your deductible is $1,500 and you have a surgery that costs $3,000, you can use your HSA to pay the $1,500 you owe.

You cannot use HSA funds to pay your monthly insurance premiums in most cases. The main exception is COBRA coverage (the temporary health insurance you can buy if you lose your job) and premiums you pay while you're receiving unemployment benefits. You also cannot use HSA funds to pay for long-term care insurance or supplemental insurance like accident or cancer policies.

This rule trips up many people because it feels like insurance is a medical expense — and it is, but the HSA rules treat premiums differently from the actual medical care the insurance covers. The logic is that premiums are insurance costs, not medical expenses themselves.

Expenses that don't count as medical

Gym memberships, fitness classes, and sports equipment are not covered, even though exercise improves health. Weight loss programs and diet plans are also not covered unless a doctor prescribes them to treat a specific condition like obesity-related diabetes. General wellness products — vitamins, protein powder, essential oils — don't count either.

Cosmetic procedures like teeth whitening, Botox, or hair removal are not covered unless they're medically necessary. For example, if you need a scar revision after an accident, that's covered. If you want to remove a mole for appearance, it's not. Plastic surgery for appearance is not covered, but reconstructive surgery after an injury or illness is.

Travel to get medical care, lodging near a hospital, and meals while receiving treatment are generally not covered. Some exceptions exist for specific situations — for instance, if you need to travel for a specialized treatment that's not available locally — but you'd need to check with your HSA provider about whether your situation qualifies.

How to know if something is covered

The IRS maintains a publication called "Publication 502: Medical and Dental Expenses" that lists hundreds of covered and non-covered items. Your HSA provider's website usually has a searchable database or a shorter list of common items. If you're unsure, you can contact your HSA provider before you spend the money and ask whether a specific expense counts.

The general test is: does a medical professional recommend this for a medical condition, or is it something anyone might buy for general health? If a doctor says you need it to treat or prevent a specific health problem, it's usually covered. If it's something you'd buy anyway to stay healthy, it probably isn't.

Keep receipts for everything you buy with your HSA card, especially over-the-counter items. If you're audited or your HSA provider questions a purchase, you'll need to show proof of what you bought and that it was a medical expense. Digital photos of receipts work, and many HSA providers let you upload them directly to your account.

What happens if you use HSA money for non-medical expenses

If you withdraw HSA money and use it for something that doesn't count as a medical expense, you owe income tax on that amount. You'll also owe a 20 percent penalty on top of the tax. So if you withdraw $500 for a non-medical expense and you're in the 24 percent tax bracket, you'd owe $120 in taxes plus $100 in penalties — a total of $220 on the $500 withdrawal.

After age 65, the penalty goes away, but the income tax remains. This means once you turn 65, you can withdraw HSA money for any reason without penalty, though you'll still pay income tax on non-medical withdrawals. Many people use this feature to treat their HSA like a retirement account after they reach 65.

Your HSA provider should send you a Form 1099-SA at tax time showing how much you withdrew. If you withdrew money for medical expenses, you report that on your tax return. If you withdrew money for non-medical expenses, you report the income and the penalty. Keeping good records makes this process much simpler.

Frequently Asked Questions

Can I use my HSA to pay for my spouse's or child's medical expenses?

Yes. HSA funds can pay for medical expenses of your spouse and any dependent you claim on your tax return, even if they're not covered by your HSA plan. You don't need to be the one receiving the care — the expense just needs to be for a medical condition.

Are prescription glasses and contacts covered by HSA?

Yes. Eye exams, glasses, contact lenses, and contact lens solution are all covered. You can also use HSA funds to pay for LASIK surgery or other vision correction procedures. Keep your receipt from the eye doctor or optical store.

Can I use HSA money to pay for therapy or counseling?

Yes, as long as it's provided by a licensed mental health professional and is for treatment of a mental health condition. Therapy sessions, psychiatry visits, and medications prescribed for mental health are all covered. Some wellness programs or life coaching that isn't medical treatment would not be covered.

What if I buy something at a drugstore that's partly medical and partly not?

You need to separate the expenses. If you buy ibuprofen and shampoo at the same store, you can only use HSA funds for the ibuprofen. Your receipt should itemize what you bought so you can show which items were medical. If the receipt doesn't break it down, contact the store for an itemized receipt.

Can I use HSA funds to pay for my pet's medical care?

No. HSA funds are only for human medical expenses. Veterinary care, pet medications, and pet health insurance are not covered, even if your pet is a service animal. Service animals' medical care still doesn't count as a medical expense under HSA rules.