Qualified Medical Expenses

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:

Abortion
Breast Pump & Supplies
Drug Addition
Lodging & Meals
Acupuncture
Capital Expenses (like door ramps)
Eye Exam
Medical Conferences
Alcoholism
Car (special design or transportation)
Eyeglassess
Nursing Home/Services
Ambulance
Chiropractor
Eye Surgery
Prescriptions*
Artificial Teeth
Contact Lenses
Fertility Enhancement
Psychologist
Bandages
Dental Treatment
Hearing Aids
Psychiatric Care
Birth Control Pills
Diagnostic Devices
Hospital Services
Special Education
Body Scan
Disabled Dependent Care
Insurance Premiums
Vasectomy

* 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 (2017), Medical and Dental Expenses

Last updated 03/02/18

Rate this article:
Thank you for your feedback!

Clear ROI. Better Outcomes. Engaged Employees.

Learn more about our partnership approach to help you achieve your benefits goals