Who Can I Cover on My HSA?

August 26, 2021

Health Savings Accounts (HSAs) are a great way to save for future healthcare costs. You can make tax-free HSA contributions as long as you are covered under a qualified High Deductible Health Plan (HDHP).

You can withdraw HSA funds to spend on IRS-approved items and services — still tax-free — or you can just let money keep growing from one year to the next. Your balance earns interest along the way and you can eventually use it as an emergency fund, or as an extra retirement account, to cover your long-term health-related costs.

But whose care can you pay for with tax-free HSA money?   

HSA Coverage Overview

The IRS clarifies that you can withdraw tax-free money from your HSA to pay for qualified health-related expenses for:

  • Yourself
  • Your spouse (regardless of whether you file taxes jointly or separately)
  • Any dependents you claim on your tax return (your children or a qualifying relative dependent) and any children who are claimed on your ex-spouse's tax return
  • Anyone you could have claimed as a dependent, but weren't able to because he or she
    • filed a joint tax return (for example, your married child who files a joint return with his or her spouse), or
    • earned more than $4,300 (in 2020), or you (or your spouse, if you file jointly) could be claimed as a dependent on someone else's tax return.

You can reimburse yourself from your HSA for the cost of the qualified health-related expenses for any dependents in the above categories. It doesn't matter whether the person was covered under your HDHP or even whether they had health coverage at all.

Examples

Spouse on Medicare, young adult child on parent's HDHP

You're 60 and your husband is 66. You have a 25-year-old daughter who lives on her own and files her own taxes but remains on your health insurance. You've got an HDHP through your employer, which covers you and your daughter. Your husband is on Medicare.

You're allowed to contribute the full family amount to your HSA, because your HDHP is covering both yourself and your daughter. but you can only use your HSA funds to pay for your own medical care and your husband's. You can't use it to pay for your daughter's care, because you can't claim her as a dependent since she files her own taxes.

Keep in mind tax rules (which pertain to HSA contributions and withdrawals) are separate from insurance rules (which pertain to who is allowed to be covered under your plan).

Your daughter can open her own HSA since she's covered by your HDHP. Note that she would not be able to contribute to her own HSA if she were still your tax dependent. She can contribute the full $7,200 to her HSA, since she's covered under a family HDHP. You can also make contributions to her HSA on her behalf.  

Spouses with separate health plans, dependent child covered under other insurance

You and your wife each have coverage through your own employers. You have an HDHP that only covers you, while your wife has a non-HDHP for her own coverage. You have a 20-year-old son who is a full-time college student.

Your son is enrolled in the non-HDHP health insurance plan that his college offers. You and your wife file a joint tax return and claim your son as a dependent (as long as he's a student, you can claim him as a dependent until he turns 24).

You can contribute $3,600 to your HSA in 2021, since you have self-only HDHP coverage. You can use the money in your HSA to pay for qualifying health-related expenses for you, your wife, and your son.

Divorced mom who supports elderly parents and does not have custody of her daughter

You divorced a few years ago and your former spouse, who has primary custody, claims your daughter as a tax dependent. Your elderly parents live with you and you claim them as qualifying relative dependents.

Your parents are enrolled in Medicare, your daughter is covered under your former spouse's health plan, and you have a non-HDHP plan through your current employer. Your previous employer offered an HDHP and you stashed away some money in an HSA while you worked there.

You can't contribute any more money to your HSA unless you switch to another qualified HDHP. You can use the money that's left in your HSA to cover qualified health-related expenses for yourself, your daughter, and your parents (because your parents are qualifying relative dependents).

Even though your daughter is not your tax dependent, the IRS considers her to be your dependent for the purpose of being able to use your HSA funds to cover her health-related expenses.

 

There are a lot of things to keep in mind when it comes to paying for family health-related expenses with HSA funds. Chard Snyder can help if you have questions. The HSA Store also provides great resources.