Distributions for Qualified Medical Expenses
Generally, taxpayers will pay medical expenses during the year without being reimbursed by the HDHP until the plan's annual deductible is reached. When the taxpayer pays these medical expenses that are not reimbursed by the HDHP, the taxpayer can request a distribution from the HSA trustee. The taxpayer can receive tax-free distributions from an HSA to pay or be reimbursed for qualified medical expenses incurred after the taxpayer establishes the HSA.
Qualified medical expenses are expenses that generally would qualify for the medical and dental expenses deduction. Examples include unreimbursed expenses for doctors, dentists, and hospitals. See Publication 502, Medical and Dental Expenses, for more information.
Taxpayers must keep records to show that HSA distributions were used to pay or reimburse qualified medical expenses, that these expenses had not been paid or reimbursed from another source, and the medical expense had not been taken as an itemized deduction in any year. For recordkeeping requirements on HSA distributions see Publication 969, Distributions from an HSA. Taxpayers are not required to take annual distributions from their HSA.
For 2011, over-the-counter medicines or drugs without a prescription, except for insulin, are no longer qualified medical expenses for HSA purposes. For HSA purposes, a medicine or drug will be a qualified medical expense only if the medicine or drug:
This applies to amounts paid after 2010. However, it does not apply to amounts paid in 2011 for medicines or drugs purchased before January 1, 2011.
Vikki purchased $300 of over-the-counter medicine without a prescription on December 29, 2010. This qualifies as an HSA medical expense, even if she received an HSA distribution for the reimbursement in 2011. If Vikki buys more over-the-counter medicine without a prescription in April 2011, it will not qualify as a medical expense for HSA purposes. The new rules apply to over-the-counter medicines without a prescription, purchased after December 31, 2010.
Preventive services, not reimbursed by the HDHP, can be paid from an HSA.