When it comes down to your HSA account, you most likely know the basics of your plan. However, do you know what it takes to get your distribution from your HSA to be tax-free? In this article, we are going to explain the conditions and why you may or may not be eligible for your distribution to be tax-free. Keep reading to learn more!
Your first step in determining whether or not your distribution from your HSA can be tax-free is to ask yourself if the distribution was used to pay (or reimburse) for an expense to treat or prevent a mental illness, such as doctor visits or a prescription medication. If the answer is no, you need to ask if the distribution was used to pay for LTC insurance premiums. Should the answer be yes to this question, based on your age, a portion of the premium can qualify. Should the answer to this question be no, you need to answer the following:
- If you are over age 65, was the distribution used to pay for health insurance premiums, not including Medicare supplemental policies?
- If yes, your expense is a Qualified Medical Expense
- If no, was the distribution used to pay for COBRA or health insurance premiums when receiving unemployment compensation?
- If your answer to this question is no, this expense is likely not a Qualified Medical Expense (QME).
Once you have determined whether or not your expense is a QME, you have several more questions to ask yourself, such as the following:
- Was the QME paid (or refunded) by any health insurance plan, or was the QME claimed as a medical expense deduction?
- Was the QME incurred by you or your spouse?
- Did the distribution occur when the HAS owner was age 65 or older, or disabled?
- Was the QME incurred by a dependent child who was under age 19 (24 if a full-time student), or is permanently disabled?
- Was the QME incurred after the HSA was opened?
As you can see, determining whether or not your distribution from your HSA will be tax-free is quite a process. We are here to help you determine whether not you have a Qualified Medical Expense (QME) and if that QME is qualified for a tax-free distribution. We have compiled these questions into a user-friendly, easy to follow flow chart for you to view. Check it out here!
Once you have reviewed the flow chart, give us a call and let’s go over your HSA account and expenses to determine the next steps to take. You can reach us by phone at (321) 225-3154 or email us at firstname.lastname@example.org. We are here to help!