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Sabtu, 01 Juni 2013

What Can You Pay for Out of a HSA?

HSAs, or Health Savings Accounts, are tax-favored savings plans for medical expenses. Think of them as 401k retirement plans for health care. Employees divert a portion of their pre-tax earnings to a savings account. Doing this lowers adjusted gross income, which lowers a person's tax bill. In exchange for these benefits, federal regulations restrict how you can spend HSA money.

Qualified Expenses

    People with HSAs can use the money to pay for or reimburse themselves for qualified medical expenses, which the IRS defines as "costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes."

Identification

    Under IRS rules, people can deduct medical expenses when those expenses exceed 7.5 percent of adjusted gross income. IRS Publication 502 guides taxpayers through medical and dental expenses. This publication is also used to define qualifying expenses for Health Savings Accounts, but expenses from HSAs do not need to exceed 7.5 percent of adjusted gross income to be eligible. Further restrictions on HSA spending can be found in IRS Publication 969, which notes that, except in specific circumstances, HSA funds cannot be used to pay for health insurance premiums.

Significance

    To qualify for an HSA, workers must be enrolled in a high deductible health insurance plan. High deductible plans are less expensive that traditional health insurance, about $11,000 per year for family coverage as of 2010, compared to $13,000 for traditional insurance. However, they feature higher out-of-pocket costs. Families may spend more than $2,400 before the insurance begins to cover costs. Family plans in 2009 had a maximum out-of-pocket expense of $11,900.

Specifics

    There is a long list of what is allowable and not allowable under IRS regulations. Ambulance rides and acupuncture are allowable expenses. Vitamins and supplements are not an allowable expenses under the rules. Likewise, hair transplants, swimming lessons and baby sitting expenses cannot be deducted. Abortion and Christian Science Practitioners are allowable expenses. Personal items that are commonly used by everyone, a toothbrush for example, are not allowable expenses, "unless it is used primarily to prevent or alleviate a physical or mental defect or illness." Medical marijuana is not allowable as are other controlled substances used in violation of federal law. Weight loss plans for people who suffer from specific diseases are also allowable, but there are plenty of restrictions. The disease must be diagnosed by a doctor; gym memberships are not allowed and food cannot be deducted because you have to buy food anyway. Fees for weight loss meetings for example are allowable.

Warning

    Some HSA plans give patients debit cards that can be used for medical expenses. These cards make it easy to spend HSA money because they are accepted wherever credit cards are accepted. The danger, however, is that you could spend HSA funds on items that are not qualified medical expenses. These are known as "distributions" and can be disastrous. Distributions are taxed as income, and are also subject to a 10 percent penalty. That penalty rises to 20 percent in 2011. Rule changes in 2011 also mean that over-the-counter medication is no longer HSA-eligible.

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