8 Things You Surprisingly Can’t Buy with your FSA or HSA Funds

Health insurance isn’t the only way to pay for medical expenses.

Some employers offer flexible spending accounts and health savings accounts that allow you to put money aside for health care costs. But you need to know what are and are not FSA and HSA eligible items before you use that money.

The Importance of FSA and HSA Eligible Items

These funds go into your account before you pay taxes on them. That means you’re setting a portion of your income aside, tax-free, without having to pay income taxes when you use the funds.

Because this money is tax-deferred, the Internal Revenue Service (IRS) sets strict standards on how you spend it. 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.

FSA vs. HSA: Key Differences

If you work for an employer with a health plan, chances are that employer lets you set money aside for the future. In addition to a 401(k), many employers now let employees save for medical expenses in a special savings account.

There are two types of savings accounts: flexible spending accounts (FSAs), which are employer-sponsored, and health savings accounts (HSAs), which require a high-deductible health plan. The funds in an FSA expire at the end of each year. Your HSA rolls over from year to year. In both cases, the funds are earmarked for medical expenses, which means some of your purchases may be denied. Even if a purchase goes through, that doesn’t mean you bought from the FSA and HSA eligible items list.

The IRS and Distributions

Although you don’t pay taxes on HSA and FSA distributions, or when you use money from the account, you’re still responsible for reporting them. You must report any distribution that wasn’t used for an approved medical expense. You’ll 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 doesn’t mean the IRS would approve.

What if your plan administrator doesn’t 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.

“The IRS isn’t going to pat you on the back for trying,” said Kraig Kleeman, CEO at The New Workforce. “They want to see that you’re spending your funds on eligible expenses. So, do yourself a favor and get cozy with IRS Publication 502. It’s not exactly a page-turner, but it’s your roadmap to keeping your spending on the straight and narrow.”

8 Non-Eligible Purchases

Keeping up with FSA and HSA eligible items is sometimes tricky. As a general rule, if you use it to treat or manage a specific condition, it’s likely allowed. Here’s a list of some of the top purchases that could get flagged if you use tax-deferred funds.

1. Supplements

Holistic medicine has gone mainstream recently, as both consumers and medical specialists incorporate it into health care practices. But when it comes to tax-deferred funds, you can’t just head to a local drugstore and buy an over-the-counter remedy. The IRS stresses that a medical practitioner must recommend any natural medicine as a remedy for a specific ailment.

“Generally, if you’re eyeing some fancy supplements or a new-age treatment, remember this golden rule: if it doesn’t have a prescription or isn’t medically necessary, it will probably not fly with your HSA or FSA,” Kleeman said.

2. Missed Appointment Fees

Some medical offices charge fees for missed appointments or last-minute cancellations. If you’re using your HSA or FSA funds to pay for medical appointments and those fees are tacked on, that part of your payment isn’t eligible. Your plan administrator or an auditor may question the purchase later.

3. Maternity Clothes

If you’re pregnant, you can use your FSA or HSA account for medical costs, but maternity clothes aren’t among those covered expenses. It covers pregnancy tests, though.

4. Eyeglass Accessories

If you need prescription eyeglasses, those are covered, including both the frame and the lenses. Accessories used for the maintenance and repair of prescription glasses can be purchased using your HSA/FSA funds, but cosmetic accessories cannot. Nonprescription glasses and sunglasses also aren’t eligible.

5. Weight Loss Programs

Weight loss programs are only flex spending eligible items if the plan addresses a specific health issue. If the program is intended to improve your overall health or appearance, you’ll have to pay for it with funds that aren’t tax deferred. Gym memberships also aren’t FSA or HSA eligible items.

6. Cosmetic Procedures

Medical procedures designed to improve your appearance are not HSA or flexible spending eligible items. This includes hair transplants and hair removal. If the surgery corrects a congenital deformity or a disfiguring injury, you can pull out your HSA/FSA card to pay for it.

7. Toiletries

Toiletries used for everyday personal use aren’t FSA and HSA eligible items. Items like shampoo, toothbrushes, toothpaste, cosmetics and toilet paper are considered personal hygiene products, not medical aids. However, you’re in the clear if a medical professional recommended a toiletry to treat a specific health issue. For example, if your dentist recommends an electric toothbrush or your doctor prescribes a lice shampoo, you can use HSA/FSA funds for the purchase.

8. Childcare

Yes, it would be nice to use HSA funds to pay for daycare. Unfortunately, childcare expenses are not qualified HSA expenses. Childcare also isn’t on the list of flex spending eligible items unless you have a dependent care flexible spending account (DCFSA). A DCFSA is a type of flex spending account that pays for dependent care that allows you or your spouse to work, look for work or attend school full time.

How to Stay HSA/FSA Compliant

When it comes to HSA and FSA compliance, the responsibility ultimately falls on you, the plan member. As Cat Torres, health and welfare sales consultant at Sentinel Benefits and Financial Group points out, even if an item appears on the eligible list, you may need a prescription or a Letter of Medical Necessity from your physician.

“Use trusted resources like the FSA Store to confirm whether your purchase is indeed eligible,” Torres advises. “Purchasing ineligible items could lead to card suspension and ultimately taxation on the amount spent if the ineligible purchase isn’t remedied.”

Health savings accounts and flexible spending accounts are a great way to offset medical costs. When in doubt, consult your plan administrator to make sure you purchase FSA and HSA eligible items.

Stephanie Faris is a professional finance writer with more than a decade of experience. Her work has been featured on a variety of top finance sites, including Money Under 30, GoBankingRates, Retirable, Sapling and Sifter.