Health savings accounts (HSAs) can be a powerful tool for helping sick, injured, or disabled people and their loved ones afford medically-necessary transportation costs. In this guide you’ll learn how to use your HSA for transportation expenses.
This blog will discuss (HSAs), and what transportation-related expenses can and can not be claimed as qualified medical expenses under current law.
We’ll also explore how you can utilize HSA funds to purchase or modify a vehicle to make it accessible or drivable by a disabled individual.
In addition, we’ll discuss the various IRS rules, exceptions, and tax implications associated with using HSA funds for car-related expenses.
If you have a health savings account and you or someone in your family has transportation challenges, here’s how to avoid needless taxes and get the most value out of your HSA.
What is an HSA?
A health savings account, or HSA, is a tax-advantaged savings vehicle that allows you to make qualified medical expenses with pre-tax dollars.
Money you contribute is pre-tax. Your money grows tax-deferred as long as it stays in the account. And any withdrawals (distributions) you make from an HSA for qualified medical expenses are tax-free.
Withdrawals for other purposes are taxable, and if you are under age 65, subject to a 20% penalty. But once you turn 65, the 20% penalty goes away. You can then use your HSA funds for any purpose, such as supplementing your retirement income. You only have to pay income taxes on your withdrawal, just as you would with an IRA.
Note: To make pre-tax contributions to a health savings account, you must be enrolled in a qualified high-deductible health plan, or HDHP.
What’s a Qualified Medical Expense?
To be considered a qualified medical expense, the expense must be primarily for the prevention, diagnosis, treatment, or mitigation of a physical or mental illness or condition.
Generally, transportation expenses related to a disability or medical condition are considered qualified medical expenses.
But here’s where people with disabilities can run into some challenges. Generally, rideshare expenses, cab fares, parking expenses, and other routine expenses are only qualified medical expenses for the purposes of getting to your medical appointments.
Just taking an Uber to the grocery store to pick up milk and eggs does not qualify as a medical expense under current law – even if your disability is the only reason you would take an Uber instead of walk or ride a bicycle.
But owning a vehicle that you can actually drive is a major contributor to independence and quality of life for many disabled individuals.
Furthermore, installing a wheelchair ramp and locking mechanism in a van can be a major improvement in the quality of life for parents and family of severely disabled individuals who could not be easily moved otherwise.
The same applies to custom controls or other safety and adaptive technology features in cars, trucks, and vans: Owning a vehicle with the necessary modifications can be a life-changing event for some people.
Compare Pricing on the Best HSA Plans Available
HSA Funds & Medically Necessary Transportation Expenses
You can use HSA money to pay for medically necessary transportation.
Examples of medically necessary transportation costs include:
- Taking a cab, Uber, or Lyft to medical appointments (round trip)
- Ambulance services
- Transportation to pharmacies to pick up prescriptions
- Transportation to physical therapy appointments
- Plane or train fare to clinics or hospitals for treatment
- Fuel costs
- Lodging expenses (See “Using an HSA to Pay for Hotel Costs,” below)
Can I Use My HSA To Buy a Car or Van?
Normally, you cannot use HSA money pre-tax to buy an entire car or van.
But you still need to get around.
Fortunately, it’s possible to tap your HSA funds to pay for certain health-related transportation expenses. You can even use HSA funds to pay for medically necessary modifications to cars, trucks, and vans.
HSA Funds and Buying a Car
You can’t use HSA funds to buy a vehicle directly. That purchase would be deemed a non-qualified expense, and subject to income taxes and a 20% penalty if the owner is under age 65.
But you can use HSA funds to purchase modifications to the vehicle – provided the modifications are directly related to mitigating a specific medical condition.
Examples of vehicle-related qualified medical expenses include installation of adaptive equipment, including but not limited to:
- wheelchair ramps and lifts
- hand controls
- power transfer seats
- Amputee rings
If you’re buying a vehicle that’s already been fully modified, IRS Publication 502 states that only the difference between the vehicle you’re purchasing and a stock vehicle of the same make, model, trim, and condition would be a qualified medical expense.
Medical Necessity
To qualify for HSA funds’ use, the vehicle’s modifications and adaptive equipment must be a qualified medical expense under IRS rules.
This means the expense should directly contribute to the improvement, maintenance, or mitigation of the individual’s medical condition, mobility, or accessibility challenges.
So you’ll have to pay the cost of the vehicle itself out of pocket with after-tax money.
But you can use your HSA account for the cost of modifications above that amount.
These modifications can be done by the car dealer when you make the purchase. Or you can take the car to a third-party vendor to install the adaptive features and modifications.
If you purchase a car from a car dealer with the needed modifications pre-installed, you should work with your dealer to get an itemized invoice, breaking out the cost of any medically necessary modifications as separate line items.
That way, you will have a document to justify any claimed medical expense to the IRS, in case of an audit.
If you use a third-party vendor to install the adaptive and safety equipment, you should keep a receipt.
Note: Some manufacturers offer a rebate to help offset the cost of accessibility modifications. Ask your dealer manager about the rebate, which usually only applies to newer cars.
Documentation
Keeping records is vital.
You should also retain medical records, including evidence of a specific diagnosis, prescriptions, letters from healthcare professionals, and anything else that documents the need for an adapted or specialized vehicle or equipment.
You should also retain any invoices or receipts that document the cost of medically necessary vehicle modifications. You don’t need to submit these documents with your tax returns. But they will be important in the event of an IRS audit, or if the IRS challenges a specific transaction.
These documents will be important in the event of an audit, or if the IRS challenges your transaction.
Using an HSA to Pay for Car Operating Expenses
If you use a car for medical purposes, You can use your HSA to pay for out-of-pocket expenses, such as the cost of gas and oil used directly for your medically necessary transportation. However, you can’t use your HSA to reimburse yourself for depreciation, insurance, general repair, or maintenance expenses.
Alternatively, you can reimburse yourself up to the standard mileage rate for medical expenses. That amount changes every year with the cost of living. For tax year 2023, the standard medical mileage rate is 22 cents per mile.
Additionally, You can also use your HSA debit card or have your HSA reimburse you for parking charges and necessary tolls for medical reasons. You can do this whether you use the “actual expenses” method or the mileage method.
HSA Don’ts
Don’t use your HSA to pay for the costs of commuting to and from work, even if your condition requires an unusual means of transportation.
Don’t use your HSA to travel for purely personal reasons to another city for an operation or other medical care.
Don’t use your HSA to pay for travel that is merely for the general improvement of one’s health. Expenses must be tied to the treatment of a specific diagnosed condition.
Don’t use your HSA to pay for the costs of operating a specially equipped car for other than medical reasons. You can use your HSA to purchase the modifications, but not to operate the vehicle, other than for fuel and other actual expenses directly related to medically necessary travel, up to the standard medical mileage rate.
Can I Rent a Car Using my HSA?
Yes, it is possible to rent a car using a health savings account and document it as a qualified medical expense.
Rental car costs may qualify if the primary purpose for incurring them is for medical treatment – for example, to visit an out-of-town specialist.
You may need to document mileage, and submit the car rental receipt along with other documentation of your medical appointment to your HSA administrator or custodian for reimbursement or to have the expense logged as medically necessary.
It may also be possible to lease a car using HSA funds, and have at least part of the leasing costs be a qualifying medical expense.
Using an HSA to Pay For Hotel Costs
Yes, if you need to leave town for medical treatment, or you need to accompany a family member for medically necessary treatment out of town, you can use your HSA to pay for lodging.
For lodging/hotel expenses to qualify as a medical expense, all of the following criteria must be met:
- The lodging is primarily for and essential to medical care.
- The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital.
- The lodging isn’t lavish or extravagant under the circumstances.
- There is no significant element of personal pleasure, recreation, or vacation in the travel away from home.
Taxation of Transportation-Related HSA Withdrawals
As we mention above, the cost of the car or van itself is a personal expense and not considered a qualifying medical expense for the purpose of accounting for HSA transactions and filing your personal income tax return.
But the cost of medically necessary modifications are qualified medical expenses. So you need to track these expenses so you can claim them on your federal income tax return.
Do I Need to Itemize Deductions To Use an HSA?
No.
Qualified medical expenditures are an “above-the-line” deduction. That means you don’t have to itemize. You can get the full benefit of the pre-tax treatment of qualified HSA transactions even if you take the standard deduction.
How To File Taxes When You Have HSA Transactions
To document the medically necessary expenses related to the car modifications and report them on your tax return, you would use IRS Form 8889, which is specifically designed to report HSA contributions and distributions.
You would fill out Part II of Form 8889, which covers distributions, to report the expenses related to the car modifications.
In Part II, you would report the total amount of qualified medical expenses paid from your HSA during the tax year, including the cost of the car modifications. You should keep all documentation and receipts to support the expenses claimed.
Make sure the expenses meet the criteria listed in IRS Publication 502 as medically necessary and eligible for HSA distributions.
How Much Can You Save?
Using HSA money to pay for medical expenses like accessibility modifications to a car or van can help you save a significant amount of money on taxes.
Let’s break down the potential tax savings based on your specific situation. Let’s assume you’re in a 25% effective income tax bracket.
According to research from Consumer Affairs, the typical cost of wheelchair-friendly modifications to a car or van is around $15,000 to $30,000.
The HSA contribution limits for 2023 are $3,850 for self-only coverage, and $7,750 for family coverage. Those aged 55 and older can contribute an additional $1,000 as a catch-up contribution.
So if you’re starting from scratch, it will take you the contributions from at least two different years to have $15,000 sitting in your HSA ready to spend on van modifications or other medical expenses.
Let’s assume the van modifications will cost $15,000.
Contributions to an HSA
By contributing $15,000 to your HSA over time, you are effectively reducing your taxable income by that amount. Since you are in the 25% effective tax bracket, your tax savings from the HSA contributions would be $3,750 (25% of $15,000).
Accumulating HSA Funds for Vehicle Modification
Once you have accumulated $15,000 in your HSA, you can use these funds to pay for the modification to your van. Since the HSA withdrawals used for qualified medical expenses are tax-free, you won’t owe any taxes on the $15,000 used for the vehicle modification.
Therefore, using an HSA to make the purchase rather than paying directly out of your own personal savings or using a credit card or personal loan will save you $3,750 in income taxes.
It’s important to note that these calculations are based on the assumption that you meet the eligibility criteria for HSA contributions and that the vehicle modification qualifies as a medically necessary expense.
Additionally, tax laws and rates may change over time, so it’s advisable to consult with a tax professional or financial advisor for personalized advice based on your specific circumstances.
Conclusion
If you or a member of your family has medical conditions or disabilities that require specialized adaptive equipment or modifications to a car, truck, or van, using a health savings account to handle the expense to the maximum extent possible makes good sense.
By understanding the guidelines, documenting medical necessity, and keeping track of expenses, you can leverage HSA funds to enhance your quality of life and that of your family, while also avoiding needless taxes.
Here are some additional blogs on HSA: Unlock the Power of Your HSA: Pay for a Chiropractor & Chiropractic Care from your Health Savings Account | Can I Use an HSA to Pay For Counseling or Therapy?| Higher 2024 HSA Contribution Limits Allow You To Save Even More on Taxes | How to Switch to an HSA Plan (And Why You Should Do It)
Here are some additional pages related to this article: HSA Secure Plan | Healthshare Plans
HSA for Transportation Expenses: FAQs
Can I use my Health Savings Account (HSA) funds to pay for adaptive equipment for my vehicle?
Yes, you can use HSA funds to cover the costs of adaptive equipment for your vehicle. Adaptive equipment includes modifications such as wheelchair lifts, hand controls, ramps, or other devices that are necessary to accommodate your specific needs as a disabled individual.
Are there any restrictions on the types of adaptive equipment I can purchase with HSA funds?
As long as the adaptive equipment is considered medically necessary and directly related to your medical condition or disability, you can typically use your HSA funds to cover the costs. It’s important to keep documentation and receipts to demonstrate the medical necessity of the equipment.
Can I use HSA funds to purchase a wheelchair-accessible van?
Yes, you can use HSA funds to purchase a wheelchair-accessible van if it is deemed medically necessary. The van should be specifically designed or modified to accommodate your mobility needs as a disabled individual.
What if I need to modify a regular vehicle to make it wheelchair accessible?
If you need to modify a regular vehicle to make it wheelchair accessible, you can use your HSA funds for the costs associated with the modifications. These modifications may include installing ramps, lifts, or other adaptive equipment necessary to accommodate your wheelchair or mobility device.
Can I use HSA funds for routine vehicle maintenance expenses?
No, routine vehicle maintenance expenses, such as oil changes, tire rotations, or general repairs, are not considered qualified medical expenses under HSA rules. HSA funds should be used for medical-related expenses directly related to your disability or medical condition.
Are there any limitations on the amount I can withdraw from my HSA for adaptive equipment or vehicle modifications?
There are no specific limitations on the amount you can withdraw from your HSA for adaptive equipment or vehicle modifications, as long as the expenses are deemed medically necessary. However, you can only withdraw up to the available balance in your HSA account.
Do I need a prescription from my doctor to use HSA funds for adaptive equipment or vehicle modifications?
While a prescription is not always required, it’s recommended to obtain a letter of medical necessity or a prescription from your healthcare provider. This documentation helps substantiate the medical necessity of the adaptive equipment or modifications when using HSA funds.
Can I use HSA funds for leased adaptive vehicles or modifications?
Yes, you can use HSA funds for the lease payments or lease-related expenses of adaptive vehicles, as long as the lease is specifically for an adaptive vehicle that accommodates your disability and is deemed medically necessary.
Can I use HSA funds to purchase a vehicle for someone else, such as my dependent with a disability?
Yes, you can use your HSA funds to purchase a vehicle for a dependent with a disability if the purchase is medically necessary and directly related to their medical condition. Keep in mind that the vehicle should be primarily used to accommodate their medical needs.
Are there any tax considerations when using HSA funds for adaptive equipment or vehicle modifications?
No, as long as the expenses are considered qualified medical expenses under IRS guidelines, the use of HSA funds for adaptive equipment or vehicle modifications is tax-free. However, it’s recommended to consult with a tax advisor or financial professional for personalized advice based on your specific circumstances.
It’s important to keep detailed records, receipts, and documentation of your HSA expenses related to adaptive equipment or vehicle modifications for tax purposes and to substantiate the medical necessity of the expenses.
Can I have a nurse or attendant travel and use an HSA to pay his or her travel expenses?
Yes.
You can use your HSA to pay the travel and transportation expenses of a parent or guardian who must go with a child, or for a nurse or other individual who can give injections, medications, or other treatments for a patient who cannot travel alone.
Can I use an HSA to pay for travel to visit a family member?
Yes, in the case of a mentally ill dependent, if your doctor recommends visitation as a part of the patients’ treatment.
