Qualified expenses that can be paid tax free from a Health Savings Account>

by Shelia Gulliton

There is a lot of confusion about what qualifies as a medical expense and what expenses can be properly paid from a Health Savings Account without incurring a tax penalty.

Generally, the IRS defines a qualified medical expense as the cost of diagnosis, cure, mitigation, treatment or prevention of disease affecting any part or function of the body. To be a qualified withdrawal, the service or item, does not have to be something which would normally be paid by traditional health insurance.

For instance, dental services might not be covered under your health insurance plan, but dental services are a qualified expense and may be paid for from an HSA without any tax penalty.

The definitive list of what services and products qualify can be found in the IRS Publication, Number 502. The list is very extensive. It starts with acupuncture and goes all the way to x-rays. Some of the qualified expenses may not be obvious, so lets discuss a few of the more unusual

Because qualified medical expenses, as defined, aim to promote a healthy life style, services such as alternative medicine treatments, psychologists and Christian Science practitioners are included.

Massage therapy is a qualified expense if it is recommended by a physician, physical therapist or chiropractor, but it will not be a qualified expense if the person self refers without the advice of a medical professional. Yoga and other mind-body programs will also qualify, if recommended by a health care professional.

On the other hand, vitamins or nutritional supplements would only be a qualified expense when recommended by a medical professional for the treatment of a specific condition. Pre-natal vitamins would always qualify.

Acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction may also be considered covered medical expenses.

Expenses as diverse as a Seeing Eye Dog or a corrective device such as a special mattress and/or board to assist a patient with arthritis or back problems are considered qualified.

Special education required because of a medical problem will qualify as do TV modifications such as closed caption devices for the hearing impaired. Transportation expenses related to treatment of an illness will qualify.

Most people find that there are so many items which qualify, that they use up all the money in their Health Savings Account without keeping enough in the fund to pay for their deductible in case of more traditional medical expenses.

What are some expenses that are not qualified? A vacation, no matter how needed to restore mental and emotional health, is not a qualified expense. Neither are diaper services, maternity clothes, cremation or burial expenses, bottled water or social or health club fees.

Another expense that cannot be paid from a Health Savings Account is the premium for health insurance unless you are unemployed for six months or are collecting unemployment benefits. Don't make a mistake and claim an expense whch is not qualified. If you do, you will have to pay a 10% penalty and add the amount of the expense to your taxable income.