Your health savings account works like an IRA for medical bills. You deposit money tax-free, it earns interest tax-free, and your withdrawals are tax-free as long as they're for qualified medical expenses. Anything that the IRS identifies as a deductible health-care expense in Publication 502 qualifies as tax-free HSA spending -- but marriage counseling represents a bit of a gray area depending on how Section 213(d) of the Tax Code is interpreted. Certain mental health services, such as treatment for depression, are considered medical expenses. However, the consensus of insurance companies and other financial experts seems to be that marriage counseling does not typically qualify as a "medical" expense.
The IRS knows doctors care for your mind as well as your body. According to Publication 502, psychiatric and psychological care are both deductible medical expenses, when the care is for a medical condition, such as bipolar disorder or depression. In certain narrow circumstances, such as treatment provided by a psychiatrist for a couple's sexual problems, the expenses are clearly qualified medical expenses -- but that's not what people usually think of when they think of "marriage counseling." Insurers such as Cigna and Aetna interpret Section 213(d) of the Tax Code to mean that typical marriage counseling for a couple's relationship issues is not a qualified medical expense.
If you need to tap your HSA to pay for counseling, that's perfectly legal. As it's probably not a qualified medical expense, however, whatever you withdraw from the account is taxable. You also pay a 20 percent tax penalty unless you're disabled or over 65. The same rule applies to any other non-qualified expenses. And, even if your spending is for qualified medical expenses -- for example, to pay your psychiatry bills for depression treatment -- it only qualifies if you spend the money for yourself, your spouse or your dependents. Paying doctor bills for an unmarried partner doesn't cut it.
If you spend HSA money this year, you use Form 8889 to report it to the IRS. Write down your total HSA withdrawals, then subtract any qualified medical expenses that weren't reimbursed by insurance. What's left is the taxable part of your HSA distributions, which you add to your other income on your 1040. If, say, you withdraw $1,600 for psychiatric help and $1,100 for marriage counseling you report a total $2,700 in withdrawals, then subtract $1,600. That leaves $1,100 in taxable income.
If the IRS ever audits your HSA spending, there are specific things it will look for. The auditor wants to see if you made a taxable HSA withdrawal but didn't report it; spent HSA money on a bill your insurer reimbursed you for; or spent HSA money on a bill you also deducted from your taxes. To protect yourself, keep records tracking your medical spending. Don't send the bills in with your tax return -- just keep them where they're available if the IRS ever asks questions.
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- Internal Revenue Service: Health Savings Accounts and Other Tax-Favored Health Plans
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- IRS: Form 8889
- Aetna: HSA Allowable Health Care Expenses
- Cigna Choice Fund: Eligible and Ineligible Expenses
- Cornell University Law School: 26 USC § 213 - Medical, Dental, Etc., Expenses
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