Frequently Asked Questions

Q: What is the tax treatment of contributions and investment earnings?

A:  An individual’s contributions are deductible for federal income tax purposes, even if the account beneficiary does not itemize.

Employees’ contributions to an HSA are considered wages, and therefore are subject to FICA taxes. Self-employed individuals are not subject to FICA taxes, but pay self-employment tax instead. An HSA contribution does not reduce self-employment tax.

Employer contributions are made on a pre-tax basis and are not subject to employment taxes (e.g. FICA).

Investment earnings accumulate tax-deferred, and if used for qualified medical expenses are received federally income tax-free.

Q: Are health insurance premiums qualified medical expenses?

A:  Generally, health insurance premiums are not qualified medical expenses except for the following:

  • COBRA Insurance
  • Qualified long term care insurance (subject to the dollar limits in Publications 502)
  • Health insurance premiums for individuals receiving unemployment compensation
  • For Individuals age 65 or older, Medicare and retiree health insurance premiums (except for Medicare Supplement policy premiums)

Q: What are Non Qualified Medical Expenses?

For specific descriptions of what is covered under each of these areas, please see IRS Publication 502 Medical and Dental Expenses, available online under “Forms and Publications” at or by calling 1-800-829-3676.

The following is a list of some items that you cannot include in figuring out your medical expense deduction.

  • Babysitting/Childcare for a Normal Healthy Baby
  • Controlled Substances
  • Cosmetic Surgery
  • Dancing Lessons
  • Diaper Service
  • Hair Removal
  • FSA (Flexible Spending Account)
  • Funeral Expenses
  • Future Medical Expenses
  • Hair Transplant
  • Health Club Dues
  • Health Coverage Tax Credit
  • Health Savings Account (Contributions are deducted separately)
  • Household Help
  • Illegal Operations and Treatment
  • Insurance Premiums
  • Maternity Clothes
  • MSA (Medical Savings Account)
  • Nutritional Supplements
  • Presonal Use Items
  • Teeth Whitening
  • Weight Loss Program

Q: What purchases are considered Qualified Medical Expenses?

A: Medical expenses are the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the cost for treatments affecting any part or function of the body.  They include costs of equipment, supplies, and diagnostic devices needed for these purposes.  They also include dental expenses.  Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness.  They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.   

The following information from the IRS offers a summary of some of the healthcare expenses that are eligible for reimbursement through your Health Savings Accounts (HSA). This list is not all-inclusive and examples and specific requirements are subject to change by the Internal Revenue Service.

For specific descriptions of what is covered under each of these areas, please see IRS Publication 502 Medical and Dental Expenses, available online under “Forms and Publications” at or by calling 1-800-829-3676.  For tax advice, consult your tax advisor.   

  • Acupuncture
  • Alcoholism
  • Ambulance
  • Artificial Limb
  • Artificial Teeth
  • Autoette
  • Bandages
  • Breast Reconstruction Surgery
  • Birth Control Pills
  • Braille Books and Magazines
  • Capital Expenses
  • Chiropractor
  • Christian Science Practitioner
  • Contact Lenses
  • Crutches
  • Dental Treatment
  • Diagnostic Devices
  • Disabled Dependent Care Expenses
  • Drug Addiction
  • Drugs (Prescription and some over the counter)
  • Eyeglasses
  • Eye Surgery
  • Fertility Enhancement
  • Guide Dog
  • Hearing Aids
  • Home Care
  • Home Improvements
  • Hospital Services
  • Laboratory Fees
  • Lead-Based Paint Removal
  • Learning Disability
  • Legal Fees
  • Lodging
  • Long Term Care
  • Medical Conferences
  • Medical Services
  • Medicines
  • Nursing Home
  • Nursing Services
  • Operations
  • Optometrist
  • Organ Donors
  • Osteopath
  • Oxygen
  • Prosthesis
  • Psychiatric Care
  • Psychoanalysis
  • Psychologist
  • Special Education
  • Sterilization
  • Surgery
  • Therapy
  • Transplants
  • Transportation
  • Vaxectomy
  • X-ray



As a reminder, the individual is solely responsible for determining whether HSA distributions are to pay for or reimburse qualified medical expenses and must maintain medical expense records to show that distributions have been made exclusively for qualified medical expenses.  

Q: How do I Report Contributions on my taxes?

Report all contributions to your HSA on Form 8889, Health Savings Accounts (HSAs), and file it with your Form 1040.

You must file Form 8889 with your Form 1040 if you (or your spouse, if married filing a joint return) had any activity in your HSA during the year. You must file the form even if only your employer or your spouse’s employer made contributions to the HSA.

You should receive Form 5498-SA, HSA information, from the trustee showing the amount contributed to your HSA during the year. Your employer’s contributions also will be shown in box 12 of Form W-2, Wage and Tax Statement, with code W.  Follow the instructions for Form 8889.  Report your HSA deduction on Form 1040, line 25.

Do all family plans meet the high deductible rules?

A:  There are some family plans that have deductibles for both the family as a whole and for individual family members. Under these plans, if you meet the individual deductible for one family member, you do not have to meet the higher annual deductible amount for the family. If either the deductible for the family as a whole or the deductible for an individual family member is below the minimum annual deductible for family coverage, the plan does not qualify as an HDHP.

Example.  You have family health insurance coverage in 2006. The annual deductible for the family plan is $3,500. This plan also has an individual deductible of $1,500 for each family member. The plan does not qualify as an HDHP because the deductible for an individual family member is below the minimum annual deductible ($2,100) for family coverage.