Can I Use My Fsa for a Friend
Can I use my HSA for a friend?
- Carla Fried
- four min read
Using your HSA to help a friend pay for medical costs tin can be a costly move, equally it typically volition trigger a big taxation beak. That said, in that location are some potential workarounds that might brand information technology possible for you lot to assist a friend without attributable taxes.
Unexpected medical bills can throw anyone's budget for a loop. When that person is a friend, it's natural to think about how y'all might be able to help deal with the big out of pocket costs.
Using your HSA to aid a friend pay for medical costs can exist a costly move, as it typically will trigger a big tax beak. That said, there are some potential workarounds that might make information technology possible for you to assistance a friend without owing taxes.
The bones rule: Family Only
You can make tax-complimentary withdrawals from an HSA to encompass qualified medical expenses for yourself, your spouse and anyone you lot claim as a dependent on your revenue enhancement return. That'south information technology. If y'all apply your HSA to pay for a friend'southward medical bills you are going to meet a big IRS bill.
The coin you lot take out of your HSA for a friend will be deemed an "unqualified expense." That ways you will owe income revenue enhancement on the withdrawal and a twenty percent penalty if you are younger than 65. If y'all are 65, the 20 percent penalisation is waived, though you volition owe income tax on what is referred to equally a not-qualified withdrawal.
That'due south the general rule. But there are a few workarounds that tin can make it possible to accept money out of an HSA tax-free to aid a friend with medical expenses.
Workaround 1: Brand a withdrawal based on prior bills you paid for out-of-pocket.
If you lot have been covering your medical expenses from savings or cash catamenia and letting your HSA account abound, y'all have the right to withdraw coin tax-free based on those old bills that you already paid. The trick is that you must take all the receipts and bills for the qualified medical expenses you paid out of pocket.
For instance, let's say that over the by iii years you paid a total of $3,000 in out of pocket medical expenses rather than tap your HSA. You can now take out $3,000 from your HSA to "encompass" those bills y'all paid, and you will owe no revenue enhancement on the withdrawal as long every bit those bills were for qualified medical expenses, and you lot've got the bills and records showing you paid 'em.
In one case you have the money it can used for annihilation. Home repairs. Paying down credit card debt. Helping a friend.
Workaround 2: Claim a friend as a dependent
The IRS will permit tax-gratuitous withdrawals from your HSA if your arrangement with your friend meets the requirements to be claimed every bit a "qualifying relative" dependent.
In that location are several qualifications that your friend volition need to fulfill in order to exist qualified as a dependent:
- Your friend must alive with you the entire yr.
- Your friend must have gross income below $iv,050. (Social Security is non included in that calculation.)
- Your friend can't file a articulation taxation return with anyone else.
- You must provide at to the lowest degree 50 percent of the back up for your friend.
If that's at all in the realm of possible, you can learn more nearly "qualifying relative" status in IRS Publication 501. It also makes sense to check in with a revenue enhancement pro for some guidance on how this move could impact other parts of your tax life.
Giving rules outside of an HSA
Rather than raid your HSA, you lot might desire to consider using other savings. It'south typically smartest to go out your retirement savings untouched. That's money you are going to need. Simply if you have other savings –a plump emergency savings fund or actress cash, you tin gift that money to a friend and neither of y'all will encounter any tax bill. If that'south possible, it may make more sense than using your triple-taxation-free HSA dollars.
Any private can give another private $15,000 in 2022 without any tax, or needing to file any paperwork with the IRS. If your friend has a partner or spouse, you could requite him or her another $15,000 without any tax implications.
The reality is that yous can give a whole lot more than with triggering any taxes.
Information technology's just that whatever annual souvenir of more than $xv,000 will require you to report the gift to the IRS when you file your tax render for the twelvemonth. Don't worry; this is but a paperwork issue, no tax will be due. The IRS uses your reporting on Revenue enhancement Form 709 to keep track of your large gifts throughout your life. Based on current taxation police, you will merely owe taxation if your lifetime gifting reported to the IRS is more $11.four meg.
Moreover, if your gift was that you paid a medical or insurance bill straight, the IRS won't require you to file Form 709 regardless of how big the beak is. A direct payment to encompass someone else's medical expenses is non counted as office of your lifetime gift exclusion.
Read more than by Carla Fried
Carla specializes in service journalism for news outlets including The New York Times, Money magazine, and CNBC.com. For the past 15 years she has writen for traditional news outlets, ghostwriting books and articles for clients, creating content for major financial service firms, and editing investment newsletters and white papers. Her work appears in The New York Times, Coin Mag, Barron'southward and Consumer Reports.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, bookkeeping or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available data, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any fiscal planning strategy.
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