Health savings accounts (HSAs) can be a valuable tool for paying for healthcare expenses, including mental health services like therapy and counseling.
Using an HSA to pay for mental health care, counseling, or therapy can help save you money, provide flexibility in choosing your own doctor, and most importantly, access the care you need.
In this guide, we will discuss how to use an HSA to pay for therapy, counseling, and/or mental health care, what care is eligible for HSAs, and some of the tax ramifications of this amazing money-saving tool.
What is a Health Savings Account?
A health savings account is a type of savings account that is used to pay for eligible medical expenses. You or your employer can contribute pre-tax dollars to your HSA, and the money grows tax-free, as long as the money stays in your account.
You can use the funds in your HSA to pay for qualified medical expenses, including therapy and counseling. Any money you withdraw to pay for qualified medical expenses is also tax-free. A 20% penalty applies to any withdrawals that are not for a qualified medical expense. So it’s best to leave the money to compound over time, unless you have a qualified medical need.
If you have money in your HSA, you can spend it on health care at any time. It vests to you right away, even if the contribution came from your employer, not you.
However, to make new contributions, and get a tax deduction for those contributions, you must be enrolled in an HSA-qualified high deductible health plan.
Eligible HSA Expenses for Therapy & Counseling
Therapy and counseling can be expensive, but in many cases, your therapy, counseling, and other mental health-related bills are eligible medical expenses that can be paid for using HSA funds.
It is important to note that services must be medically necessary as defined in IRS Publication 502.That means that the mental health care provided must be related to treating or managing a specific diagnosed medical condition.
They must also be provided by a qualified healthcare provider.
HSA Therapy & Counseling Exclusions
Here are some examples of mental health care, counseling, or other mental health-related services that would not be qualified medical expenses for an HSA.
- Marriage counseling. Marriage counseling is generally not considered a qualified medical expense, even if it is recommended by a healthcare provider. However, if the counseling is focused on treating a diagnosed mental health condition, it may be eligible.
- Coaching or personal development services. Coaching or personal development services are not considered qualified medical expenses, even if they are intended to improve mental health.
- Relaxation or stress reduction classes. Classes focused on relaxation or stress reduction, such as yoga or meditation, are not typically considered qualified medical expenses, even if they are recommended by a healthcare provider.
- Support groups. While support groups can be helpful for individuals with mental health conditions, they are generally not considered qualified medical expenses.
- Life coaching. Life coaching is not considered a qualified medical expense, even if it is intended to improve mental health or wellbeing.
It’s important to note that these examples may vary based on individual circumstances, and it’s always best to check with your tax advisor to determine which expenses are eligible for HSA reimbursement.
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Documenting Your Medical Expenses
If you are ever audited, the IRS may require you to provide proof that your medical expenses are qualified medical expenses under the law. If they challenge the expense, and you can’t document your medical need, you may have to pay taxes and penalties for a non-qualified HSA distribution.
To protect yourself, it may be wise to get a letter of medical necessity (LMN) from your physician. To get a letter of medical necessity, you should talk to your healthcare provider, such as your doctor, therapist, or other medical professional. They will be able to evaluate your condition and determine if a particular treatment, service, or item is necessary for your medical care.
If the provider determines that a particular treatment, service, or item is necessary, they can then write the LMN.
The letter should include a detailed explanation of the medical condition being treated, why the requested service or item is necessary, and how it will improve your health or quality of life. It may also include supporting documentation, such as medical records or test results.
How to Pay For Therapy and Counseling With an HSA
Using your HSA to pay for therapy and counseling is simple. You can pay for services directly from your HSA account. All you need to do is present your HSA debit card to your provider. Your HSA plan administrator will track your expenditures.
In some cases, your HSA debit card may not work at all locations. Some cards will only work at known hospitals, clinics, and other healthcare providers.
In this instance, you can pay your qualified medical expense out of pocket, and reimburse yourself from your HSA later by making a withdrawal.
If you use this method, you are responsible for record-keeping and documenting the transaction, as well as the medical need behind it.
Be sure to keep all receipts and documentation of your expenses, as you may be required to provide proof of payment and eligibility in the event of an audit.
If you are considering using an HSA to pay for therapy or counseling, there are many resources available to help you navigate the process. The Internal Revenue Service (IRS) website provides detailed information on eligible expenses and requirements for HSA plans. Your HSA plan administrator may also provide guidance and assistance.
Conclusion
Using an HSA to pay for therapy and counseling can help you manage the cost of these essential services.
By understanding the eligibility requirements and guidelines for using your HSA, you can make the most of this valuable resource. Be sure to consult with your healthcare provider and HSA plan administrator for guidance and support as you navigate the process.
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HSAs for Therapy & Counseling FAQs
What is an HSA, and how does it work for paying for therapy?
An HSA, or Health Savings Account, is a tax-advantaged savings account that can be used to pay for qualified medical expenses, including therapy and counseling.
You can contribute pre-tax dollars to the account, and withdrawals for qualified medical expenses are tax-free. More information on HSAs can be found at the IRS website.
How do I know if my therapy or counseling qualifies as a qualified medical expense?
Generally, therapy or counseling will qualify as a qualified medical expense if it is deemed medically necessary by a licensed healthcare provider.
This determination can be made through a Letter of Medical Necessity, which is a written statement from your healthcare provider explaining why the therapy is necessary for your health. More information on qualified medical expenses can be found at the IRS website.
Can I use my HSA to pay for therapy for my family members?
Yes, you can use your HSA to pay for qualified medical expenses for your spouse and dependents.
What if I have a high-deductible health plan (HDHP) and my therapy expenses exceed my deductible?
If your therapy expenses exceed your deductible, you can use your HSA funds to pay for those expenses. More information on HSA contributions and HDHPs can be found in IRS Publication 969.
What happens if I use my HSA to pay for non-qualified expenses?
If you use your HSA funds to pay for non-qualified expenses, you will owe income tax on the withdrawal, as well as a 20% penalty if you are under age 65.
Can I use my HSA to pay for therapy if I am no longer enrolled in an HDHP?
No, you can only use your HSA to pay for qualified medical expenses if you are enrolled in an HDHP.
However, you can continue to withdraw funds from your HSA for qualified medical expenses even after you are no longer enrolled in an HDHP.
Learn more about HSA eligibility.
Can I use my HSA to pay for therapy if I am covered by Medicare?
No, you cannot contribute to an HSA if you are covered by Medicare.
However, if you had an HSA prior to enrolling in Medicare, you can continue to use those funds for qualified medical expenses, including therapy. More information on HSA eligibility and Medicare can be found at the Medicare website.
Can I use my HSA to pay for therapy if I am covered by Medicaid?
It depends on your state’s Medicaid program.
Some states allow HSA contributions and withdrawals for qualified medical expenses, while others do not. You should check with your state’s Medicaid program for more.
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