Nonqualified medical expenses

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
• Meals
• 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.

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