Using Pre-Tax Income on Naturopathic Care with an HSA


A health savings account (HSA) is a health savings account with tax benefits and investment opportunities. You can use it to pay for certain medical expenses that your health insurance may not cover, such as naturopathic care, crutches or fertility treatments.

To contribute to an HSA, you must be enrolled in an HSA-qualified High Deductible Health Insurance Plan (HDHP). HSAs are not only a smart way to pay for medical bills like deductibles and coinsurance, but they are also increasingly being used as part of a retirement planning strategy.

However, due to tax advantages, there are many rules about who can create an HSA, who can contribute money to an HSA, and what that money can be used for. If you don't follow the rules, you will lose tax benefits and have to pay additional penalties.


If you manage your HSA correctly and follow all IRS rules, your HSA contributions are:

  • Pre-tax - these contributions will not be taxed as income

  • No tax on interest earned (through investment or interest income)

  • Not taxed if you take it out of the HSA to pay qualified medical expenses

Here's how it works: The money you put into your HSA is before taxes. If your employer contributes to your HSA, that money doesn't count as income, so you won't pay any taxes on it.

Interest and investment income in your HSA is deferred for tax purposes just like an IRA. Because you don't pay the growth tax every year, you keep more money in the account and the account grows faster. And there is no "use or lose" rule for HSAs. If you don't need to withdraw the money to pay medical bills, it just stays in the account and carries over from year to year. Therefore, it is possible to accumulate a large amount of savings in an HSA if you make consistent contributions and do not have to make withdrawals.

When you take money out of your HSA to pay for eligible medical expenses, you don't have to pay income taxes. However, if you take money out of your HSA but don't use it for medical bills, you'll have to pay income tax plus a 20% penalty (which was 10% before, but the Affordable Care Act raised it to 20%).

After you turn 65, the rules are a little different. If you have Medicare, you will no longer be able to contribute to your HSA. However, you can still use the money you saved in your HSA. Unlike before age 65, you can spend your HSA money on whatever you want and you won't have a 20% penalty. However, you will have to pay taxes on HSA withdrawals that are not used for medical expenses. If you take money out of your HSA and use it for qualified medical expenses, you will not pay regular income tax. It is completely tax free.


You pay all penalties when you file your tax return. The penalty is 20% of the amount you spent for non-qualified expenses. You should also report these expenses to the IRS yourself using Form 8889 to avoid possible future audits.


You can only use the HSA to pay for eligible medical expenses. The IRS calls them the cost of diagnosing, curing, alleviating, treating, and preventing disease. The full list can be found on the IRS website.

Eligible Expenses

Your payments include medical benefits and preventive care, not only from doctors and surgeons, but also from dentists, optometrists, and mental health professionals.

Other HSA qualification costs include:

  • Acupuncture

  • Chiropractor

  • Fertility treatments

  • Treatment of alcoholism and drug addiction

  • Smoking cessation programs (but not products)

  • Weight loss programs

  • Glasses and contact lenses

  • Chronic long-term care services and a limited number of premiums for long-term care insurance

  • Abortion

  • Birth control pills

  • Sterilization as a vasectomy

  • Auto expenses such as gas, parking fees, and tolls when used for qualified health care and services

  • Nursing homes

  • Wigs

Ineligible Expenses

Not all medical expenses are qualified. The main things to remember are over-the-counter medicines and future medical bills. Therefore, you cannot make advance payments that will be billed to you later.

Typically, your HSA cannot cover anything that promotes your overall wellness, unlike treating a specific condition.

These are some medical expenses that are not covered by the HSA

  • Controlled substances

  • Over-the-counter medications

  • Vitamins and nutritional supplements

  • Gym membership or other gym fees

  • Home help

  • Life insurance premiums

  • Funeral expenses

  • Gum and nicotine patches

  • Teeth whitening


You must have a high deductible health insurance plan (HDHP) to open an HSA account. For 2021, this is a health insurance plan with a minimum deduction of $1,400 for individuals or $2,800 for families.

If you're enrolled in Medicare, have someone else's health insurance, or if someone claims they're a dependent on a tax return, you're not eligible for an HSA. Your doctor will tell you if your plan qualifies for an HSA. Otherwise, you can open one yourself. Health insurance accounts can have a maintenance fee, whether you have one with your health insurance company or create one.


With an HSA, others can contribute to your account. This means that employers, family members, and others can fund your account too.

You can also transfer money from an IRA to your HSA with a single transfer. Just make sure you stay within the contribution limits set by the IRS.

The following contribution limits apply to the HSA for 2020:


Individuals $ 3,550

Families $ 7,100

Age 55 and older $1,000 catch-up contributions

Catch-up contributions are additional contributions that you can make beyond normal limits.

The end of contributions for HSAs begins when you enroll in Medicare (usually 65). From that point on, you will no longer be able to fund the account.


Treatments such as massage and acupuncture are often used as supplemental treatments alongside more conventional treatments for conditions such as pain management. For these types of treatments however, your doctor will need to provide you with a letter of medical necessity (LMN). This letter should state the actual diagnosis and how the specified treatment can help treat the problem. For specific qualified expenses and information on the requirements of a letter of medical necessity, you should contact a tax professional.