The US has 4 types of healthcare + dependent care programs:
| Account Type | When You Can Have It | What It Covers | 2025 Contribution Limit | Compatible with HSA? | Grace Period / Carryover Rules (Employer-Dependent) |
|---|---|---|---|---|---|
| HSA (Health Savings Account) | Only if you have a High-Deductible Health Plan (HDHP) and no Medical FSA | Qualified medical expenses (medical, dental, vision, prescriptions, etc.) | $4.5k single $8.5k family |
✅ (primary account) | ✅ Funds never expire — roll over every year and remain yours permanently. |
| Medical FSA | Only if you don’t have an HSA/HDHP | Qualified medical expenses (medical, dental, vision, prescriptions, etc.) | Employer-set; $3k | ❌ | ⚠️ “Use it or lose it,”, employer may allow: Carryover up to ~$650 to next year OR Grace period of 2½ months after plan year ends. |
| Limited-Purpose FSA (LPFSA) | If you have an HSA, this is the only type of FSA you can also have | Dental and vision expenses only | Employer-set; $3k | ✅ | Same as Medical FSA — employer may offer carryover (up to ~$650) or a 2½-month grace period. |
| Dependent Care FSA (DCFSA) | Available regardless of HSA or HDHP status | Childcare and dependent care so you (and your spouse, if married) can work | $5k per household, $2,5k if married filing separately |
✅ | ⚠️ “Use it or lose it,” but employer may allow a 2½-month grace period. No carryover allowed no matter what |
WHAT is HSA (detailed):
- Requires enrollment in a High-Deductible Health Plan (HDHP).
- You can use your HSA to pay for eligible health care, dental, and vision expenses for yourself, your spouse, or eligible dependents (children, siblings, parents, and others who are considered an exemption under Section 152 of the tax code).
- Your yearly income before paying taxes is called "gross" or "total" income.
- From this amount, you can contribute a maximum of $4.5k/yr into your HSA (Health Savings Account) if single and 8.5k/yr if you have a family.
- Good HSA account providers allow investments in crypto/stocks/bonds/ETFs, etc.
- Choose the investment of your choice and start making monthly or yearly contributions.
- It is recommended that you pay for your health expenses out-of-pocket instead of HSA so that your PRETAX investment in your HSA account can grow without withdrawls.
- Keep all your health expense receipts with you for later withdrawls in life when your HSA has grown OR you need liquid cash from your HSA account.
- Remember, you're saving money because no federal (and most state/local) taxes are taken out of your contributions initially or ever (for qualified health expenses).
WITHDRAWL RULES for HSA wrt age:
- pay both penalty+tax: Any age, if NOT withdrawing for qualified Health Expenses.
- penalty+tax free: Any age, if withdrawing for qualified Health Expenses.
- pay taxes only: age > 65 if not withdrawing for qualified Health Expenses.
What are Qualified Medical Expenses (QME's):
- This list is only applicable to people living in USA who have medical insurance and are enrolled in an HSA plan.
- Qualified medical expenses (QMEs) are designated by the IRS and include medical, dental, vision, and prescription expenses.
- QMEs are subject to change by the IRS at any time.
- It is the member's responsibility to verify that expenses incurred are designated by the IRS and by the plan sponsor as a QME.
- This list is not comprehensive. It is provided to you with the understanding that we are not engaged in rendering tax advice.
- The information provided is not intended to be used to avoid federal tax penalties.
- Eligible dependents include children under 13 years of age, and a spouse or other dependent that is physically or mentally incapable of caring for themselves.
- If you have an HRA or FSA (not HSA), your employer’s plan may only reimburse a subset of expenses.
- Please refer to your Plan Document for confirmation of reimbursable expenses under your plan.
- Over-the-counter drugs no longer require a prescription to be reimbursed as of Jan 1, 2020.
- For more detailed information, please click here. If tax advice is required, you should seek the services of a professional.
Common/Generic IRS-Qualified Medical Expenses (QME's) covered by both HSA & FSA:
- Acupuncture
- Ambulance
- Artificial limbs
- Artificial teeth*
- Birth control treatment
- Blood sugar test kits for diabetics
- Breast pumps and lactation supplies
- Chiropractor
- Contact lenses and solutions*
- COVID-19 diagnostic testing and treatment
- Crutches
- Dental treatments (including X-rays, cleanings, fillings, sealants, braces and tooth removals*)
- Doctor’s office visits and co-pays
- Drug addiction treatment
- Drug prescriptions
- Eyeglasses (Rx and reading)*
- Fluoride treatments*
- Feminine hygiene products
- Fertility enhancement (including in-vitro fertilization)
- Flu shots
- Guide dogs
- Hearing aids and batteries
- Infertility treatment
- Inpatient alcoholism treatment
- Insulin
- Laboratory fees
- Laser eye surgery*
- Medical alert bracelet
- Medical records charges
- Midwife
- Occlusal guards to prevent teeth grinding
- Orthodontics*
- Orthotic Inserts (custom or off the shelf)
- Over-the-counter medicines and drugs (see more information below)
- Personal protective equipment (PPE) like masks and hand sanitizer
- Physical therapy
- Special education services for learning disabilities (recommended by a doctor)
- Speech therapy
- Stop-smoking programs (including nicotine gum or patches, if prescribed)
- Surgery, excluding cosmetic surgery
- Vaccines
- Vasectomy
- Vision exam*
- Walker, cane
- Wheelchair
Common/Generic Over-the-Counter (OTC) Medicines covered by both HSA & FSA:
- Acid controllers
- Acne medicine
- Aids for indigestion
- Allergy and sinus medicine
- Anti-diarrheal medicine
- Baby rash ointment
- Cold and flu medicine
- Eye drops*
- Feminine antifungal or anti-itch products
- Hemorrhoid treatment
- Laxatives or stool softeners
- Lice treatments
- Motion sickness medicines
- Nasal sprays or drops
- Ointments for cuts, burns or rashes
- Pain relievers, such as aspirin or ibuprofen
- Sleep aids
- Stomach remedies
Expenses Eligible ONLY if PRESCRIBED OR Letter of Medical Necessity is Provided:
- Health/Dental/Vision insurance premiums under narrow exceptions: COBRA, unemployment, Medicare, etc.
- Doctor prescribed Over-the-counter nutritional supplements / vitamins
- Weight-loss program only if it is a treatment for a specific disease diagnosed by a physician (e.g., obesity, hypertension, heart disease)
- Cosmetic dentistry that's required to correct a disease or trauma
- Compression hosiery/socks
- Massage treatment for specific ailment or diagnosis
- CPR classes for adult or child
- Improvements or special equipment added to a home or other capital expenditures for a physically handicapped person
Eligible Child/Dependent Care Expenses ONLY covered by Dependent Care FSA:
- Daycare, preschool
- Au pair services primarily for childcare (not housework or education).
- Babysitting services
- Before- and after-school programs (Must be primarily for supervision, not education)
- Custodial or eldercare expenses, in-home or daycare center Only if care enables you (and spouse) to work (NOT medical care of dependents incapable of self-care)
- Nursery school (non-educational)
- Pre-kindergarten
- Summer day camp (non-educational)
Ineligible Expenses (not qualified under HSA OR FSA):
Listed below are some services and expenses that are not eligible for reimbursement. This list is not all-inclusive:
- Cosmetic / elective items
- Cosmetic dental (teeth whitening, veneers)
- Future medical care (prepayment)
- Items purchased before HSA was established
- Eye or dental cosmetic surgery
- Aromatherapy
- Baby bottles and cups
- Baby oil
- Baby wipes
- Breast enhancement
- Cosmetics and skin care
- Cotton swabs
- Dental floss
- Deodorants
- Hair re-growth supplies and/or services
- Health club membership dues
- Humidifier
- Lotion
- Low-calorie foods
- Mouthwash
- Petroleum jelly
- Shampoo and conditioner
- Spa salts
Ineligible Child/Dependent Care Expenses (not qualified under HSA):
- Clothing
- Food/meals
- Kindergarten and higher education/tuition expenses
- Overnight camp
- Private school tuition (K–12)
- Diapers (for healthy child)
- Baby wipes, baby shampoo, formula (without medical need)
- Toys, educational games, or books
- Housekeeper/nanny doing both cleaning and childcare for children >13 years of age
Disclaimers:
- All info listed above is for informational and educational purposes only.
- Info may change from year to year. Info listed here might be out-of-date.
- This list is not comprehensive. It is provided to you with the understanding that we are not engaged in rendering tax advice.
- The information provided is not intended to be used to avoid federal tax penalties.
References -
https://www.hsabank.com/hsabank/learning-center/irs-qualified-medical-expenseshttps://www.cigna.com/individuals-families/member-resources/hsa-fsa-hra-payments
https://www.irs.gov/forms-pubs/about-publication-502
https://healthequity.com/qme