Qualified Medical Expenses

Qualified Medical Expenses (QMEs) are costs that are eligible for tax-advantaged treatment under IRS guidelines. These expenses can be deducted on tax returns if spending thresholds are met, or reimbursed through tax-advantaged accounts such as Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs).

Understanding what qualifies as a medical expense can help individuals maximize their savings and avoid unnecessary tax liabilities.

Qualified Medical Expenses Defined.

According to IRS publication 502, “Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part of function of the body”.

That’s broad, right? It would be easy to assume that certain expenses are qualified that are not. Other expenses are often not thought of that do qualify. Keep reading to get a better feel for the expenses that you can benefit from keeping track of.

Qualified Medical Expense Examples.

The IRS clearly defines some medical expenses as qualified. Other expenses are only qualified if your situation meets certain criteria outlined in the IRS code. Some expenses are never considered qualified, such as cosmetic procedures that are not medically necessary and funeral and burial expenses.

Examples of qualified expenses include:

  • Copays for doctor visits.
  • Hospital stays.
  • Prescriptions.
  • Medical equipment (crutches, hearing aids, C-Pap machines).
  • Mental health services, including therapy and counseling.

Expenses that are only qualified in certain circumstances:

  • Over the county medications (must be prescribed by a doctor)
  • Health Insurance Premiums (only if you are receiving unemployment)
  • Costs associated with a medically necessary service animal.
  • Costs to remove lead based paint in certain circumstances.

Are Insurance Premiums Qualified Medical Expenses?

The short answer is it depends… both on the type of insurance purchased, and on what your situation is at the time the policy is in effect. Let’s look at different types of insurance and how each may be considered “Qualified”.

Health Insurance

Premiums you pay towards health insurance may be qualified if you are deducting expenses that exceed the minimum threshold for health expenses on your taxes (must exceed 7.5% of AGI in 2024). However, you cannot reimburse yourself from an HSA for the premium amount, unless 1 of the 4 following conditions are met (see publication 969 for details).

 

1. The insurance is long-term care insurance.
2. The premiums are for COBRA coverage.
3. The coverage was active while you were receiving unemployment.
4. Medicare part B premiums if you are over 65. (Medicare supplemental policies cannot be reimbursed.

Dental Insurance

Dental Insurance – Dental insurance is a form of health insurance, therefore the general requirements of deducting or reimbursing from an HSA would apply for dental insurance premiums.

Vision Insurance

Vision Insurance – Vision insurance is a form of health insurance, therefore the general requirements of deducting or reimbursing from an HSA would apply for dental insurance premiums.

Qualified Medical Expenses Tax Benefits.

Qualified Medical Expenses can provide significant tax benefits when paid through eligible accounts or if you meet the minimum threshold for deducting medical expenses:

Health Savings Accounts (HSAs): Contributions are tax-deductible, grow tax-free, and withdrawals for QMEs are tax-free. You can deduct your contribution even if you don’t itemize your taxes.

Flexible Spending Accounts (FSAs): Contributions are made pre-tax, reducing taxable income, and can be used for medical expenses.

Itemized Deductions: Taxpayers who itemize their deductions can deduct medical expenses exceeding 7.5% of their Adjusted Gross Income (AGI).

Record Keeping

Keeping detailed records is important. Once you count a deduction or reimburse yourself from an HSA or an FSA, that expense becomes a part of your tax records. In short, keep your receipts! It’s also a good idea to keep other documentation of supporting medical necessity such as explanations of benefits (EOBs), invoices, and any other supporting documentation.

 

Proper documentation can help in case of an IRS audit and ensure accurate reimbursement claims.

Understanding Qualified Medical Expenses can help individuals and families make informed decisions about healthcare spending while maximizing tax advantages. By strategically utilizing HSAs, FSAs, and deductions, individuals can better manage healthcare costs and improve their overall financial well-being.

For the most up-to-date and detailed information, always refer to IRS Publication 502 or Publication 969, which both provide additional details of qualified and non-qualified medical expenses and details on HSA and FSA regulation.

Still have questions about Qualified Medical Expenses?
Reach out to us.

Schedule Free Consultation
For more terminology used in health insurance plans, check out our glossary!
Health and Insurance Glossary