Qualifying expenses are those expenses that the IRS says you may pay for using a flexible spending account (FSA) or a Health Savings Account (HSA). The list of qualifying expenses is comprised mostly of health and medical related expenses, although there are additional options such as daycare expenses that can be used with an FSA, too. (They are not dealt with here.)
If your employer allows you to sock away some money in a flexible spending account, it can save you big bucks on your income taxes as long as you have a clear understanding of what the IRS considers to be "qualifying expenses."
If you use a Health Savings Account in conjunction with a high-deductible health insurance plan, you can save money by spending your HSA funds on these qualifying expenses because your HSA funds will have been saved before you paid taxes on them.
Here is the master list of FSA qualifying expenses from the IRS. Take a look at the list, but realize that it's the translation of the list, and what's missing from the list, that will best help you maximize your use of the funds you have set aside, thus saving yourself the most tax money.
Below are some examples of expenses you may not realize are qualifying medical expenses.
(Note, if your health insurance already pays for any of these products, materials or services, they will not qualify - because they will have been covered already. Link here to find a list of health and medical expenses that do not qualify for HSA or FSA reimbursement.)
Whatever you have spent out-of-pocket on prescription drugs (not reimbursed by your insurance) you may use as a qualifying expense for an HSA or FSA.
But beware: beginning in the tax year 2011, over-the-counter drugs were no longer eligible to be reimbursable by FSAs or HSAs. Learn more about this (and a tactic for working around it): Non-Qualifying Medical Expenses
If you are coming up on the end of the year and have extra FSA money to spend, then ask your doctor to write your next year's prescriptions for whatever drugs you take on a regular basis, including birth control pills, blood pressure medicine, even lifestyle drugs like Viagra.
Of course, if you do pay to purchase those drugs in one year, don't include them in your estimate of expenses in the next year.
Quitting Your Bad Habits
If you work with your doctor to quit smoking, or stop drinking, or to lose weight (see below), then those expenses may qualify for reimbursement through your FSA or HSA.
If you are coming up on the end of your FSA year, it might be a good time to talk to your doctor about quitting smoking, losing weight, or if necessary, checking yourself into a rehab center. Just be sure to write the necessary checks during the year you want to apply those expenses to your FSA.
Weight Loss for a Medical Condition
If you have hypertension, heart disease or are diagnosed as obese, some of the out-of-pocket costs for losing weight may be reimbursable.
For example, if you get involved in a weight loss program (Weight Watchers, Jenny Craig, others), or if you work with a weight loss trainer under the auspices of your doctor, and you pay for those services aside from your insurance, then they may qualify.
You'll need to subtract from those qualified expenses the costs of food, or any expenses that are simply substitutes for something else you might have needed prior to the weight loss activity.
The IRS is very clear about what may, or may not, be a weight-loss related qualified medical expense. Your best approach is to work with the administrator of your HSA or FSA to determine what can, or cannot, be reimbursed.
Preventive or Screening Tests
The Affordable Care Act (healthcare reform) provides us with many preventive tests at no out-of-pocket cost to us. Payers are expected to pay for them 100%.
However, there may be some preventive or screening tests that aren't on that list that you may want because of pre-existing conditions or family history. Co-pays or the total cost for body scans or colonoscopies or others will be reimbursable through your FSA or HSA.
If you're getting close to the end of the year, and have extra FSA money to spend, ask your doctor which tests you can move into the current year so they can be paid for using your FSA set-aside money.
This one is often a surprise. If you make modifications to your home to accommodate for a medical problem you have, then those expenses are considered qualifying expenses.
Railings, support bars, modifying hallways, doors or stairways, building an entry ramp or any other modification - as long as it needed to be done to improve your access to parts of your home because of physical/medical challenges, you can reimbursed by a FSA or HSA.
If you need batteries for your hearing aid, your glucose meter, or for any other piece of equipment that supports your health or medical condition, then you may be reimbursed for them through your HSA or FSA.
Keep the receipts, make a note about what the batteries are used for to be sure you distinguish them from any other battery purchase that may not qualify.
If it's the end of the year and you need to use up FSA money, then buy some extra batteries for those health or medical devices.
If you must spend the night away from home for any medical purpose (for example, if you seek treatment at a hospital that is not near your home, or you wish to consult with a second opinion specialist), part of the cost of your out of town lodging may be considered a qualifying medical expense.
Again, be careful. The IRS is very specific about the rules that must be followed.
As an empowered patient or caregiver, you may be interested in connecting with others who deal with the same medical problems you do, learning from them, discovering the latest research findings and more.
Consider attending a conference that addresses your medical interests. The IRS will allow you to use HSA and FSA funds to pay for conference admission, although it will not allow you to use those funds for your transportation, lodging or meals.
Pregnancy Test Kits, Fertility Treatments and Sterilization
Whether you think you are pregnant, or are having trouble conceiving a baby, or want to be sure you can no longer get pregnant, or impregnate someone else, the expenses that surround your circumstance as they relate to giving birth will be considered qualifying medical expenses.
A reminder that your actual out of pocket, reimbursable costs will not be the total cost of these events or products; rather they will be anything that is not covered by your health insurance.
If it's getting close to the end of the year, you have FSA dollars to use up, and you plan to get pregnant within the next few months, consider the purchase of a few pregnancy test kits to use up some of that money. But don't plan too far ahead. Those test kits can expire, and if they do, they may not be accurate.
Transportation / Travel
Travel or transportation for any medical reason is a qualifying expense, including tickets, gas, oil changes and other maintenance, parking fees and tolls.
Be diligent about keeping a mileage log and your receipts to back up any reimbursements you hope to achieve.