Health savings accounts (HSAs) offer a tax deduction for contributions, tax-free growth and even tax-free distributions for qualified medical expenses. These tax breaks can help make medical care for your family more affordable. Though the account is in your individual name, you can also use it for medical expenses incurred by your spouse.
You can use your HSA to pay qualified medical expenses for your eligible spouse as well as your eligible dependents.
HSA for Others' Medical Expenses
Obviously, you can use your HSA for your own medical expenses. You can also use the funds to pay for the qualified medical expenses of your spouse, any of your dependents and anyone whom you could have claimed as a dependent except for the fact that her gross income was too high or she filed a joint return. For example, if your spouse has a qualified medical expense her insurance won't cover, or that requires a co-pay, you can use your HSA to pay the bill.
Qualifying Medical Costs
Qualifying medical costs include preventative care, routine checkups, diagnosis and treatments, including dental and vision treatments. For example, if your spouse needs surgery for a broken bone, you can pay for those costs with money from your HSA; you can also use your HSA to pay for your spouse's dental work and eyeglasses. You can also pay for health insurance premiums for yourself and your spouse from your HSA.
Penalties for Non-Qualified Expenses
If you use your HSA to pay for anything other than qualified medical expenses, the IRS penalizes you by charging income taxes and it may also impose an additional 20 percent penalty on the withdrawal. For example, say you're in the 24 percent tax bracket and you take $1,000 out of your HSA to buy your wife a necklace. You owe $240 in income taxes and a possible additional $200 as a penalty. However, if you're permanently disabled or over 65 years old, you don't have to pay the 20 percent penalty.
No Double Benefit
You can't count any expenses you use HSA funds for to figure your medical and dental expenses deduction. For example, if you pay $8,000 of your spouse's medical bills during the year using your HSA, when you calculate how much you can write off on your taxes, you can't count any of the $8,000 as part of your medical and dental expenses (or your spouse's medical and dental expenses), but you won't pay taxes or penalties on the distribution from the HSA.