Ineligible Expense
A healthcare-related cost that cannot be paid tax-free from an HSA, such as cosmetic procedures or gym memberships.
What is Ineligible Expense?
An ineligible expense is any cost that doesn't qualify for tax-free HSA distribution. If you use HSA funds for ineligible expenses, you'll owe income tax on the amount plus a 20% penalty (unless you're 65 or older or disabled).
Common ineligible expenses include cosmetic surgery (unless medically necessary), gym memberships, health club dues, teeth whitening, nutritional supplements (without a prescription), and most insurance premiums. If something improves appearance rather than treating a condition, it's probably ineligible.
Some expenses are only ineligible until you have a medical reason. For example, a gym membership is ineligible, but physical therapy at a gym prescribed by a doctor could be eligible. The line between eligible and ineligible can be nuanced.
Frequently Asked Questions
What are common ineligible expenses?
Cosmetic surgery, gym memberships, teeth whitening, vitamins (unless prescribed), toiletries, and most insurance premiums are ineligible.
What's the penalty for using HSA on ineligible expenses?
You'll owe income tax on the distribution plus a 20% penalty. After age 65 or if disabled, the penalty is waived (but you still owe taxes).
Can an ineligible expense become eligible?
Sometimes. A doctor's prescription or diagnosis can make some items eligible. For example, vitamins prescribed to treat a deficiency become eligible.
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