11 Sep Can I use an HSA to pay our COBRA premiums?

Q. My husband recently got laid off from his employer. He has a Health Savings Account (HSA). Since he lost his job, he would like to withdraw funds from his HSA to cover the cost of our COBRA premium for two months. Are the HSA funds used to pay for COBRA premium taxable? Are there any penalty fees?
— Hoping for savings

A. We’re sorry to hear about your husband’s recent job loss.

We have some good news for you.

For background, a Health Savings Account (HSA) allows the owner to put money aside on a pre-tax basis to pay for qualified medical expenses such as deductibles, co-payments and coinsurance, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

She said it requires that the individual who owns the plan have a High Deductible Health Plan (HDHP) that is labeled “HSA-eligible” in order to make an annual contribution.

For 2023, the maximum contribution to an HSA is $3,850 for an individual and $7,750 for a family. For those age 55 and older, an additional $1,000 catch-up contribution may also be made, she said.

Generally, qualified expenses that can be covered by an HSA include doctor visits, medications, medical equipment, and dental and vision care for family members, she said.

“Standard medical plan insurance premiums are not considered a qualified expense,” Mott said. “However, IRS Publication 969 indicates that premiums for continuation of coverage under COBRA are considered a qualified expense.”

While no tax will be due on the use of the money for COBRA coverage, the amount will need to be reported on IRS Form 8889, she said.

Email your questions to .

This story was originally published on Sept. 11, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.