Nonqualified medical expenses are expenses not covered by your health plan and/or not specified by the IRS as qualified. Distributions for nonqualified expenses will be taxed as part of your gross income and will incur a 10% penalty.1 After age 65, the 10% penalty is dropped, though the distribution is still treated as taxable income. According to IRS, the following expenses are not qualified HSA expenses: 1
- Archer medical savings accounts
- Athletic facilities
- De Minimis (minimal) benefits
- Educational assistance
- Employee discounts
- Lodging on your business premises
- Moving expense reimbursements
- No-additional-cost services
- Over–the–counter medications (such as allergy or cold medications, pain relievers such as aspirin or ibuprofen, and antacids).
- Scholarships and fellowships
- Transportation (commuting) benefits
- Tuition reduction
- Vitamins and dietary supplements
- Working condition benefits
Generally, health insurance premiums are not qualified medical expenses, except for the following:
- Qualified long-term care insurance
- COBRA health care continuation coverage
- Health care coverage while you are receiving unemployment compensation
If you are over age 65 you may use HSA funds to pay the following premiums:
- Medicare Part A and/or B
- Medicare prescription drug coverage (Medicare Part D)
- Medicare HMO
- Premiums for employer-sponsored health insurance, or employer-sponsored retiree plan
Note: Medicare Supplemental policy premiums are not qualified medical expenses.
®, SM Marks of the Blue Cross and Blue Shield Association. SM1 Mark of Blue Cross and Blue Shield of North Carolina. SM2 Mark of ACS Human Resources and Investor Solutions, Inc.
1 Ineligible expenses are defined by IRS Revenue Code Section 213 (d).