What medical expenses are eligible for tax-free distributions from an HSA?

Distributions made for “qualified medical expenses” are generally excludable from income. For this purpose, the term “qualified medical expenses” as defined in Section 213(d) of the Internal Revenue Code and explained in IRS publication 502,‡ means amounts paid for the medical care of the accountholder, their spouse or their tax dependents, but only to the extent such amounts are not compensated by insurance or otherwise. This includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease or for the purpose of affecting any structure or function of the body, as well as for transportation primarily for and essential to such care. Qualified medical expenses do not include insurance premiums other than premiums for long-term care insurance, premiums on a health plan during any period of continuation coverage required by federal law (e.g., “COBRA” coverage), or premiums for health care coverage while an individual receives unemployment compensation.

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HSAs are available to help pay for current qualified medical expenses as well as to save for future expenses, all in a tax-exempt account.

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