You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. You don’t have to make distributions from your HSA each year.
Qualified medical expenses are those expenses that generally would qualify for the medical and dental expenses deduction. There are quite a few qualified medical expenses. If you’re wondering if yours qualify, see this reference page.
It’s important to note that it’s not just your qualified medical expenses that are eligible. You can also include qualified medical expenses that you paid for the following people:
- Your spouse: As long as you were married at the time of the medical service or when you paid the bill.
- Your dependent(s): All dependent you claim on your tax return as long as the person qualifies as your dependent at the time of the medical service or when you paid the bill.
- Any person you could have claimed as a dependent on your return except that:
- The person filed a joint return,
- The person had gross income of $4,050 or more, or
- You, or your spouse if filing jointly, could be claimed as a dependent on someone else's return.
Keep in mind:
- With a few exceptions, insurance premiums are not considered a qualified medical expense. You can find the exceptions here.
- You can’t deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your HSA.