First, the basics

There are several rules and limitations regarding using your pre-tax funds for an HSA dependent care, which must be followed to the letter. First, your parent must be your qualified tax dependent, per the definition set by the IRS.

To be eligible for dependency status, the parent must be a resident or citizen of the U.S. or a resident of Canada or Mexico. They must be your biological or adopted parent. Foster parents are not eligible to be claimed until they have lived as part of your household for at least one year.

If your parent lives with you full-time and you provide more than half of their financial support, then they may qualify as an official dependent that you can claim on your taxes. Your parent has to report that they're a dependent when they file their own taxes. Your parent also cannot have more than of $5,050 in gross income in 2024, which fortunately excludes Social Security benefits. Just like other HSA rules, you can only spend HSA funds on qualified medical expenses. For example, if your mother gets prescribed a medication that's not completely covered by Medicare, you can pay for it out of your HSA (provided your mother is a qualified dependent as discussed above). If their doctor recommends home health products, you can buy them with HSA money, too.

You can't spend HSA money on non-qualified expenses, even if they relate to your dependent parent. Anything you purchase with your HSA card still has to fall under HSA eligibility guidelines; you can find a list of some eligible items here.

The tax benefits of caregiving

If you've previously been paying for your dependent mother's diabetes medication out of pocket, you'll find a nice tax break once you start using your HSA.

The best way to save on your taxes if you're taking care of your qualified dependent parent is to contribute the maximum to your HSA. Currently, the 2025 HSA contribution limit is $4,300 a year for those participating in the health plan as an individual and $8,550 a year for those participating in the health plan as a family. If you're 55 and older, you can contribute an extra $1,000 annually.

Remember, you still need to have a high deductible health plan (HDHP) to contribute to an HSA. You can't open one just to take advantage of caregiving expenses if you don't have an eligible health insurance plan. Currently, the requirement for an HSA-qualifying plan is a deductible of at least $1,650 for individuals and $3,300 for families.

Before you sign up for an HDHP, do the math to make sure you won't pay more out of pocket. It's not worth saving $200 on your taxes if you'll spend thousands more overall.

If your parents are on Medicare, they can't open their own HSA plan. The same eligibility rules that apply to all HSA participants apply to them. If they have a previous HSA that still has money in it, encourage them to spend that down before using your own funds.

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