One of my friends asked me this question the other day. Here’s what she said:
Nancy, I am in sales, so keeping up my appearance is important to career success. Since I turned 50, I’ve started seeing an esthetician and am getting botox injections for deep wrinkles and specialized skin care procedures. My skin looks fantastic. People tell me I look 10 years younger.
Since these are medical procedures, can I use my HSA to pay for them?
The short answer is no. Health Savings Accounts have some pretty amazing tax benefits, so the I.R.S. has strict guidelines about HSA funds being used for “medically necessary,” rather than cosmetic, procedures.
Let’s talk about the tax benefits first. There are three possible tax breaks!
- A tax break on the front end—your contribution to your HSA is pre-tax, since it comes out of your paycheck before your income is taxed.
- Tax deferral as it grows—your balance grows tax deferred, so there is no 1099 issued for interest earned each year.
- Tax free when you take it out—your distributions can be withdrawn tax free for qualified medical expenses.
So what exactly constitutes a qualified medical expense? Think “medically necessary” and “prescribed by your physician.”
I.R.S. Publication 502 provides a long list of examples, including acupuncture, chiropractic care, contact lenses, eye exams and medically necessary weight-loss programs.
The I.R.S. specifically mentions cosmetic surgery, including facelifts and liposuction, as “not includible.” While they don’t call out botox specifically, it’s implied that this procedure is lumped in. Of course, if cosmetic surgery is needed due to a traumatic accident or a disease, the HSA can be used (and thank goodness for that!).
The long answer is that there may be exceptions to this rule. For example, botox can be an effective treatment for migraine headaches. This could fall into the “prescribed by your physician” category. If that were the case, you could use HSA funds to cover it.
One of my friends (who I won’t name here) is trying to beat the system by getting botox treatments from her dentist and using her Health Savings Account to pay for it. She figures she won’t get caught by the I.R.S. for unauthorized charges because dental care is a qualified expense. She’s using the dentist’s office as a trojan horse to slip in her botox treatment payments as qualified.
Although we can give her props for creativity, this move won’t stand up to an I.R.S. audit. She’d be subject to taxes on the distribution and a 20% penalty on top of that.
My advice is to skip the HSA for your cosmetic procedures and simply pay for them out of pocket. If these treatments make you look and feel fantastic, make them part of your personal care budget.
Set up a separate savings account and call it “My Fabulous Account.” Use it to save up for special ways to take great care of yourself. Then you’ll have funds available for whatever your heart desires, which may include procedures like facials or massages as well as a nutritional coach, personal training or a yoga retreat.
Taking care of yourself inside and out can be expensive. If you have money set aside specifically for that purpose, you may be more inclined to do it.
If you have a money question, ask me by leaving a comment below, tweet it to @nancy_moneydiva, or email Nancy at nancy@NancyLAnderson.com
