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Who Can Incur Qualified Eligible Medical Expenses in an FSA, HRA, or HSA?

With tax season in full swing, often the question arises regarding who can incur qualified medical expenses for an FSA or HRA. In 2010, the qualifications were amended with the introduction of the ACA, otherwise known as Health Care Reform. Previously, qualified medical expenses could be incurred by an employee or their spouse, all eligible dependents claimed on the employee’s federal tax return, and any person the employee could have claimed as a dependent on his or her tax return unless that person filed a joint return, had a gross income in excess of $3,950, or if the employee, or spouse if filing jointly, could be claimed as a dependent on someone else’s prior year return.

With the introduction of the ACA an additional qualification for incurring qualified medical expenses against a health care FSA or HRA now includes the employee’s natural, adopted, or foster child that is under age 27 at the end of the tax year (thus is, the child is still 26 or younger as of December 31st). Therefore, a child who files his or her own taxes and has not turned 27 by December 31st may still incur qualified medical expenses against the employee’s FSA or HRA for that child. Whether the child is enrolled in college, or is actually enrolled in the employer’s group health plan does not have any effect on whether they may incur qualified medical expenses against the employee’s FSA or HRA.

Remember of course that according to IRS Notice 2013-54 and subsequent guidance, the employee must be eligible for (but not necessarily enrolled in) the employer’s or spouse’s employer’s group health plan in order to participate in a health care FSA.

For HSA purposes, unlike an FSA or HRA, the rules remain as they were prior to 2010 to exclude a child who is not a tax dependent from having their expenses reimbursed from the HSA.

Posted on March 25, 2015 by Alicia Ball, Senior Account Manager - Health & Welfare Plans

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