Health insuranceisnt the only way to pay for medical expenses.
Misuse of those funds could result in harsh penalties, both for you and your plan administrator.
Here are some things to know about tax-deferred health care accounts.
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When Insurance Falls Short…
Unfortunately, insurance doesnt covereverything.These resourcescan help you manage those unexpected expenses.
The funds in an FSA expire at the end of each year.
Your HSA rolls over from year to year.
Youmust reportany distribution that wasnt used for an approved medical expense.
Youll have to pay a tax of 20% on every dollar you receive.
In most cases, you spend HSA and FSA funds through a designated card or reimbursement.
Sometimes, ineligible purchases go through.
But that doesnt mean the IRS would approve.
What if your plan administrator doesnt catch it?
The IRS may audit your plan administrator, and you may have to repay the funds, plus penalties.
It may also directly contact you if it spots a misuse.
They want to see that youre spending your funds on eligible expenses.
So, do yourself a favor and get cozy withIRS Publication 502.
Its not exactly a page-turner, but its your roadmap to keeping your spending on the straight and narrow.
8 Non-Eligible Purchases
Keeping up with FSA and HSAeligible itemsis sometimes tricky.
Heres a list of some of the top purchases that could get flagged if you use tax-deferred funds.
Supplements
Holistic medicine has gone mainstream recently, asboth consumers and medical specialistsincorporate it into health care practices.
The IRS stresses that a medical practitioner must recommend any natural medicine as a remedy for a specific ailment.
Missed Appointment Fees
Some medical offices charge fees for missed appointments or last-minute cancellations.
Your plan administrator or an auditor may question the purchase later.
It covers pregnancy tests, though.
Eyeglass Accessories
If you needprescription eyeglasses, those are covered, including both the frame and the lenses.
Nonprescription glasses and sunglasses also arent eligible.
Gym memberships also arent FSA or HSA eligible items.
Cosmetic Procedures
Medical procedures designed to improve your appearance are not HSA or flexible spending eligible items.
This includes hair transplants and hair removal.
Toiletries
Toiletries used for everyday personal use arent FSA and HSA eligible items.
However, youre in the clear if a medical professional recommended a toiletry to treat a specific health issue.
Childcare
Yes, it would be nice to use HSA funds to pay for daycare.
Unfortunately, childcare expenses are not qualified HSA expenses.
You brew coffee at home, you dont walk into Target and you refuse to order avocado toast.
(Can you sense my millennial sarcasm there?)
Use trusted resources likethe FSA Storeto confirm whether your purchase is indeed eligible, Torres advises.
Health savings accounts and flexible spending accounts are a great way to offset medical costs.
When in doubt, consult your plan administrator to see to it you purchase FSA and HSA eligible items.
Stephanie Faris is a professional finance writer with more than a decade of experience.
