Many people have questions about health savings accounts (HSAs) when they’re offered alongside their individual health insurance. The Internal Revenue Service (IRS) has strict regulations in place regarding who is eligible to use the funds, in addition to what products and services can be claimed. If you still have some questions (like many people with HSAs), this information should help clear some things up for you.
What Is a Dependent?
The IRS breaks dependent status into two categories: qualifying child and qualifying relative. Here are the requirements for each.
A qualifying child:
- Must bear a certain relationship to the claimant (such as through blood, foster care, adoption, or legal guardianship).
- Cannot turn 19 during the calendar year (or 24 if enrolled in college).
- Must share a primary residence with the claimant for at least half of the calendar year.
- Must not provide more than half of his or her own financial support.
A qualifying relative:
- Must bear a certain relationship to the claimant (such as a legal guardianship).
- Must not be a qualifying child of any other person.
- Must earn less income than the exemption amount ($4,050 for 2016 returns).
- Must receive more than half of his or her financial support from the claimant.
- Must reside with the claimant for the entire year.
While HSAs are in only one person’s name, account holders can use funds for spouses’ and dependents’ medical, dental, and vision expenses—as long as those expenses are not being otherwise reimbursed by another HSA or healthcare reimbursement arrangement (HRA). This is true even if you have self-only individual health insurance.
Additionally, if you are continuing coverage through COBRA or receiving unemployment benefits, you can use your HSA to cover the cost of individual health insurance premiums for yourself, your spouse, and qualifying dependents. It is important to note that if you are under the age of 65, you cannot use HSA funds to reimburse Medicare premiums.
Qualifying HSA Expenses
The IRS details exactly what medical, dental, and vision expenses are eligible for reimbursement in Publication 502. Examples include prescriptions, copays, hospital bills, contact lenses, glasses, dental work, and laboratory fees. If you have questions after reading the full publication, be sure to consult your HR director or third-party administrator.
HSAs are an effective way to offset medical, dental, and vision expenses that individual health insurance does not cover. It is important to be clear on regulations, specifically who is eligible to use the funds (spouses and dependents) and what expenses are acceptable so you can avoid penalties later.
How does your HSA help cover additional individual health insurance costs? Let us know in the comments below.