Can an HSA Only Be Used for Medical Expenses?

Yes, an HSA can be used for non-medical expenses, but the timing determines the cost. Before age 65, any non-medical withdrawal is added to your taxable income and hit with an additional 20% penalty. After 65, the penalty disappears and the account works like a traditional IRA for non-medical spending: you owe ordinary income tax and nothing more. Withdrawals for qualified medical expenses stay tax-free at every age.¹

What a Non-Medical Withdrawal Actually Costs Before 65

Two things happen when you pull HSA money for something that isn’t a qualified medical expense. The full withdrawal gets added to your taxable income for the year. Then the IRS adds a 20% penalty on top of the income tax you already owe.¹ That penalty is double the 10% early-withdrawal hit most retirement accounts carry.

A concrete number makes it stick. Withdraw $5,000 for a vacation in the 22% federal bracket and you owe $1,100 in income tax plus $1,000 in penalty. That’s $2,100 gone before state taxes enter the picture. Your custodian will report the distribution on Form 1099-SA, and you’ll reconcile it on Form 8889 with your return.² Skipping the reporting doesn’t erase the tax; it just layers on interest and audit exposure.

When the 20% Penalty Doesn’t Apply

Two situations waive the penalty even before 65. If the account holder becomes permanently disabled, non-medical withdrawals are still taxed as ordinary income, but the 20% is dropped. The same holds for distributions after the account holder’s death.³ Income tax still applies to the non-medical portion in both cases.

What Changes at Age 65

At 65 the 20% penalty is permanently waived.¹ You can spend the balance on housing, travel, groceries, or anything else and only owe ordinary income tax on the withdrawal, the same treatment a traditional IRA distribution would get.³

Qualified medical spending after 65 still comes out completely tax-free. That dual status is what makes the HSA more flexible than an IRA in retirement: medical costs are untaxed, and everything else is taxed like a normal retirement withdrawal. Financial planners often point to this as the reason to fund an HSA aggressively during working years, even beyond expected healthcare spending.

Insurance Premiums: The Narrow Exception

Health insurance premiums usually can’t be paid with HSA funds. The tax code carves out four specific situations where they can, and treating those payments as qualified expenses.¹

COBRA continuation coverage after losing employer insurance.
Health insurance premiums during any period you’re receiving federal or state unemployment compensation.
Medicare premiums after 65 for Parts A, B, C (Medicare Advantage), and D. Medigap supplemental premiums do not qualify.
Qualified long-term care insurance premiums, capped annually by age. For 2026 the caps run from $500 at age 40 or younger to $6,200 above age 70, with $4,960 available for ages 61 to 70.⁴

One trap catches people at the Medicare threshold. Enrolling in any part of Medicare stops your ability to make new HSA contributions, even if you’re still on a high-deductible plan. You can keep spending the balance. Part A can apply retroactively for up to six months, and any contributions made during that retroactive window become excess contributions that may trigger penalties unless withdrawn before your tax filing deadline.

Fixing an Accidental Non-Medical Charge

If you swipe the HSA card by mistake, the mistake-of-fact rule can save the transaction. Return the exact amount to the account and give the administrator a written explanation of the error. Do it before your tax filing deadline and the withdrawal is treated as if it never occurred, with no income tax and no 20% penalty.³

Administrators aren’t required to accept a correction, though most cooperate if you move fast. If yours refuses, the withdrawal has to be reported as non-qualified, with the associated tax and penalty. Contact the administrator as soon as you notice the charge rather than waiting for tax season.

Knowing What Actually Counts as Medical

Plenty of “non-medical” spending is actually qualified once you know the scope. The IRS defines qualified medical expenses as anything that diagnoses, treats, prevents, or mitigates disease, or that affects a structure or function of the body.⁴ That covers doctor visits, hospital stays, dental work, prescription eyeglasses and contacts, hearing aids, and mental health treatment.

Since 2020, over-the-counter medications and menstrual products qualify without a prescription. Pain relievers, allergy medicine, cold remedies, and tampons can be paid for from the HSA. Smoking cessation programs qualify. Weight-loss programs qualify only when prescribed for a specific diagnosed condition such as obesity or heart disease.⁵

Vitamins, supplements, and gym memberships sit in a gray zone. As general purchases they don’t qualify. A doctor’s prescription tying a specific supplement or gym membership to a diagnosed condition can move the expense into eligible territory.⁶ The line is whether the purchase targets a specific medical problem or just supports general wellness.

Medical travel is another commonly missed category. Mileage to doctor visits, specialists, and hospitals qualifies at the IRS medical rate, which is 20.5 cents per mile for 2026, plus tolls and parking.⁷ Overnight lodging for treatment is eligible up to $50 per night per person.⁸ Home modifications like ramps, widened doorways, or grab bars can qualify when medically necessary; if the change also raises the home’s value, only the portion above that value increase counts. Long-term care services also fall within the medical care definition.⁴

Keep itemized receipts and explanations of benefits. The IRS can ask you to substantiate any withdrawal, and a general recollection won’t hold up in an audit.⁸

Prohibited Transactions Can Blow Up the Whole Account

Some non-medical uses do more than trigger tax on one withdrawal. Self-dealing with HSA assets, such as lending yourself money from the account, pledging it as collateral for a loan, or buying property from yourself inside the account, is a prohibited transaction.⁹ The consequence is that the account stops being an HSA. The entire fair market value is treated as a taxable distribution, and if you’re under 65, the 20% penalty applies to the full balance on top of income tax.¹

Swiping the debit card for a non-medical purchase is far less severe: only that specific withdrawal is taxed. A prohibited transaction destroys the whole account. Standard HSAs held at a bank or brokerage almost never bump into this. Self-directed HSAs holding alternative assets are where the risk lives, and the safe move is to keep investments inside the custodian’s normal options and never use the account for personal financial transactions.

What Happens to the Account at Death

Non-medical treatment kicks in automatically when the account holder dies, and who inherits changes the answer dramatically. A spouse named as beneficiary simply takes over the account as their own HSA, with no immediate tax and continued tax-free use for qualified medical expenses.³

Any other beneficiary faces a harder result. The account stops being an HSA on the date of death, and the entire fair market value is taxable income to the beneficiary that year. The one offset: the beneficiary can reduce that taxable amount by any qualified medical expenses of the deceased they pay within one year after the date of death.³ If the estate is the beneficiary, the value goes on the decedent’s final return. A large HSA balance left to a non-spouse can generate a significant tax bill, so the designation is worth reviewing.

1
Office of the Law Revision Counsel. 26 USC 223 Health Savings Accounts
2
Internal Revenue Service. About Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
3
Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
4
Office of the Law Revision Counsel. 26 USC 213 Medical, Dental, Etc., Expenses
5
Internal Revenue Service. IRS Outlines Changes to Health Care Spending Available Under CARES Act
6
Internal Revenue Service. Frequently Asked Questions About Medical Expenses Related to Nutrition, Wellness and General Health
7
Internal Revenue Service. IRS Sets 2026 Business Standard Mileage Rate at 72.5 Cents Per Mile, Up 2.5 Cents
8
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
9
Office of the Law Revision Counsel. 26 USC 4975 Tax on Prohibited Transactions