Money in the account can be used to pay for any “qualified medical expense” permitted under federal tax law. This includes most medical care and services, dental, and vision care.
The money in the account may pay for medical expenses of the individual, spouse, or dependent children. The account can be used to pay for expenses of a spouse and dependent children even if they are not covered by the HDHP.
Any amounts used for purposes other than to pay for “qualified medical expenses” are taxable as income and subject to an additional 20% tax penalty. Examples include:
Medical expenses that are not considered “qualified.”
Other types of health insurance unless specifically approved.
Medicare supplement insurance premiums.
Expenses which are not medical- or health-related.
After age 65, the 20% additional tax penalty no longer applies. If an individual becomes disabled and/or enrolled in Medicare, the account can be used for other purposes without paying the additional 20% penalty.