Compound It! Can you use an HSA for a domestic partner?

Non-traditional family finances aren't easy to navigate and health care is no exception. Let's face it — when health savings accounts (HSAs) launched back in 2004 — inclusivity wasn't top of mind for legislators.

As a result, many families have questions about HSAs and the best ways to use their pre-tax money for medical expenses. To get a better understanding, we took a look at how the IRS interprets the law.

What is a domestic partner?

Domestic partnerships began in the 1980s as the result of activism. LGBTQ groups fought for same-sex rights long before the legalization of gay marriage. Vermont was the first to extend domestic partner benefits statewide.

Today, each state has their own definition of domestic partnerships, and it extends beyond same-sex couples. Most domestic partners live together, combine finances, and some may raise children together too.

Only a handful of states recognize domestic partnerships at the state level. Even if your state doesn't, it's possible some local or locally-based companies do. The best way to learn more is by speaking to your company's human resources department.

How your domestic partner impacts your health savings account

Covering health care for your entire family is expensive. Even routine check-ups, dentist appointments, and the most basic care adds up fast. Health savings accounts (HSAs) are one way to reduce the burden. By putting pre-tax money into your account, you get a discount every time you swipe your HSA card — but only for qualified medical expenses.

Bad news: domestic partners don't qualify

When it comes to stretching your health care dollars, your HSA may appear to be the perfect solution — until you realize who it actually covers. According to the IRS, you can only cover qualified medical expenses for certain people. These folks are limited to:

  • You
  • Your spouse
  • Dependents you claim on your tax return

Same-sex marriage has been legal since 2015 and married couples enjoy the same benefits as spouses of the opposite sex. But unfortunately, the same perks aren't available for domestic partnerships. The same goes for civil unions or other types of non-married relationships.

The one exception for domestic partners

We get it — it's disappointing to learn your domestic partner can't benefit from your HSA. Although it's rare, there's one exception. If you've become your domestic partner's caretaker and they're a dependent on your tax return, you can offset the medical expenses with HSA money.

If you spend health savings account money on your domestic partner

In most cases, spending your HSA money on your domestic partner isn't a mistake you want to make. In the eyes of the IRS, it's a non-qualified distribution. That means your withdrawal may be taxed like normal income. Plus, you could have to pay an extra 20% penalty.

Talk early and often about your finances

Dealing with money in a non-traditional household isn't easy. Even if your state recognizes domestic partnerships, there are many federal benefits you won't qualify for. You can't use your HSA for your domestic partner's health care, but that doesn't mean you can't plan for a healthy financial future.

The key to any couple's long-term financial success is communicating early and often. By working together, you can avoid potential challenges as they arise — which will set you both up for a long, healthy life together.

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Compound It! is your weekly update of achievable, effective, no-nonsense HSA account, saving and investment advice, delivered by people who make it work in their own lives. For the latest info about your health and financial wellness, be sure to check out the HSA Learning Center, and follow us on Facebook and Twitter.

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