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IRS lays out which HSA expenses are tax deductible

You can use HSA plans for many different expenses, but not all of them are tax deductible. The IRS has provided updated guidance on HSA plans.
IRS lays out which HSA expenses are tax deductible
Posted at 12:15 PM, Mar 23, 2023

The Internal Revenue Service recently updated guidance on what expenses are considered tax deductible when using a health savings account (HSA) or other similar plans. 

HSA plans will allow you to use your account for a variety of things, including items like bandages, condoms, sunscreen, and other items you can get at a pharmacy. However, not all of these expenses are tax-deductible.

The IRS generally allows deductions for medical expenses, such as doctor’s appointments and prescriptions. 

“Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body,” the IRS said. “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. They also include the costs of medicines and drugs that are prescribed by a physician. Medical 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.”

So where is the line between alleviating an illness versus general health? People go to the gym to curb obesity. Over-the-counter medicines can be used to treat a plethora of illnesses. 

The IRS now provides guidance on those expenses.

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In some cases, a gym membership can be considered tax-deductible. But if you’re just going to the gym for leisure, it won’t be covered.

The cost of a gym membership can be included in a tax-deductible HSA “if the membership was purchased for the sole purpose of affecting a structure or function of the body (such as a prescribed plan for physical therapy to treat an injury) or the sole purpose of treating a specific disease diagnosed by a physician (such as obesity, hypertension, or heart disease),” the IRS said. “Otherwise, the cost of a gym membership is for the general health of the individual and is not a medical expense.”

The same is true for those who utilize weight-loss programs. 

Over-the-counter medicines are a bit trickier. In general, only insulin can be considered tax deductible. But the IRS notes that an HSA can pay for over-the-counter medicines and menstrual products even if they’re not tax deductible. 

One way to get gym memberships, weight-loss programs, and other items paid by an HSA to be tax deductible is to obtain a letter of medical necessity from a doctor. 

According to HealthEquity, the letter “verifies the services or items you are purchasing are for the diagnosis, treatment, or prevention of a disease or medical condition.” 

A full list of examples is on the IRS website.