Penalty Increases for 2025 Returns

IRS Warning for HSA, Health FSAs, and HRAs

A bulletin was recently released by the IRS, reminding taxpayers that tax-advantaged medical savings accounts (i.e., health flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) are not to be used for general health and wellness expenses. Similarly, health savings accounts (HSAs) cannot be used to pay for health and wellness expenses on a tax-free basis.

 

What is a qualified medical expense?

Each of these accounts can be used to pay out-of-pocket costs for qualified medical expenses not covered by a health plan. In order to be considered qualified, the expenses must be incurred to alleviate or prevent a physical or mental defect or illness. Payments for medical services by a physician, surgeon, dentist, or other practitioner are considered qualified medical expenses, as are the costs of equipment, supplies, and prescribed medicines.

Expenses only beneficial to general health are not considered qualified medical expenses.

 

When are nutrition, wellness, and general health expenses considered qualifying?

Through FAQs by the IRS, individuals can determine when nutrition, wellness, and health expenses are considered qualifying medical expenses.

The expense is considered qualifying if:

  • The nutritional counseling or weight-loss program treats a specific disease diagnosed by a physician.
  • The nutritional supplement is recommended by a medical practitioner as treatment for a medical condition diagnosed by a physician.
  • The weight-loss food/beverage does not satisfy normal nutritional needs, alleviates or treats an illness, and is recommended by a physician.
  • The gym membership was purchased to treat a structure or function of the body (a prescribed physical therapy plan) or to treat a specific disease diagnosed by a physician.

Please note, the cost of exercise for the improvement of general health is never considered a qualifying medical expense, even if it is recommended by a doctor.

 

Employers and employees should take precautions to ensure their HSA, health FSA, or HRA expenses are considered qualifying medical expenses to avoid denied claims.