What are Qualified Medical Expenses?

2021 Updates: The amounts paid for personal protective equipment (PPE) are also eligible to be paid or reimbursed under health FSAs, HRAs, or HSAs. See IRS press release: Face masks and other personal protective equipment to prevent the spread of COVID-19 are tax-deductible (3/21/21)

The cost of home testing for COVID-19 is also eligible. See IRS press release: Cost of home testing for COVID-19 is eligible medical expense; reimbursable under FSAs, HSAs (9/10/21)

Health Savings Account (HSA) or Flexible Spending Account (FSA) funds that are used to pay for "qualified" medical expenses are not taxed. Qualified medical expenses are approved medical, dental, and vision fees and services.

Expenses a Health Reimbursement Account (HRA) can reimburse are limited to qualified medical expenses; however, an employer may choose to be more restrictive on what the plan will reimburse.

It's a surprisingly broad list, defined by the IRS in Publication 502 (beginning on page 5). These are just some examples:

AbortionBreast Pump & SuppliesDisabled Dependent CareLodging & Meals
AcupunctureCapital Expenses (like door ramps)Drug AddictionMedical Conferences
AlcoholismCar (special design or transportation)Eye ExamNursing Home/Services
Artificial TeethCOBRA premiums or health coverage while receiving unemploymentEye SurgeryPsychologist
BandagesContact LensesFertility EnhancementPsychiatric Care
Birth Control PillsDental TreatmentHearing AidsSpecial Education
Body ScanDiagnostic DevicesHospital ServicesVasectomy

* Insulin is the only drug that is eligible without a prescription. Over-the-counter (OTC) medications are only eligible if you have a prescription. 

For HSAs: Any funds you withdraw for non-qualified medical expenses will be taxed at your income tax rate plus 20% tax penalty if you’re under 65.

From IRS Publication 502:

Medical expenses are the 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.

Medical care expenses must be primarily to alleviate or prevent a physical or mental disability or illness. They don't include expenses that are merely beneficial to general health, such as vitamins or a vacation.

Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.

Resources and references:

FSA Store
HSA Store
IRS Publication 502, Medical and Dental Expenses

Last updated 09/10/21

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