Can I Borrow from My HSA? Withdrawals, Penalties, and Fixes

No, you cannot borrow from your HSA. Federal law treats any loan from a Health Savings Account, or any use of the balance as collateral, as a prohibited transaction, and the penalty is the loss of the account’s tax-advantaged status entirely. There is no participant-loan feature like the one many 401(k) plans offer. What you can do is reimburse yourself tax-free from the HSA for qualified medical expenses you already paid out of pocket, even years after the fact, and once you turn 65 you can withdraw for any purpose without the 20% additional tax.

Why an HSA Loan Isn’t Allowed

The Internal Revenue Code lists lending between a plan and its owner as a prohibited transaction. That covers a direct loan from the account and indirect arrangements like pledging your HSA balance to secure a personal or business loan.¹ Many employer retirement plans allow formal participant loans with a repayment schedule. HSAs have no equivalent provision.

The cost of breaking the rule is steep. Under Section 223(e)(2), the account stops being an HSA. The IRS applies rules similar to a prohibited IRA transaction: the full fair market value of the account is treated as distributed to you on the first day of the taxable year.² Because that deemed distribution is not treated as used for qualified medical expenses, the entire balance is added to your income and hit with the 20% additional tax. On a $30,000 balance, that is $6,000 in penalty alone, plus regular income tax on the full amount. There is no mechanism to reinstate the account once its HSA status is gone.

Your custodian reports every distribution to the IRS on Form 1099-SA, and you report them on Form 8889 with your Form 1040.³⁴ A “short-term loan” out of an HSA is not invisible to the IRS.

Reimburse Yourself for Past Medical Bills

The rule that most people don’t realize: there is no deadline for reimbursing yourself from your HSA for a qualified medical expense. If you pay a $3,000 dental bill today with your own money, you can let the HSA keep growing and pull that $3,000 out tax-free ten years later.⁵ For someone who needs cash now and has a stack of paid medical receipts from earlier in the year, this is often the answer they were actually looking for.

Two conditions apply. The expense must have been incurred after your HSA was established; earlier bills don’t count no matter how large. And the expense cannot have been reimbursed by insurance or any other source.⁵

Record-keeping is what makes or breaks this strategy. If the IRS questions a distribution you took five years after the fact, you need the receipt, the explanation of benefits showing insurance did not cover it, and enough documentation to show the expense qualified. The IRS generally asks taxpayers to keep records for three years after filing, and with delayed HSA reimbursements that clock does not start until you take the distribution and report it.⁶ In practice, keep every medical receipt until you have reimbursed yourself and filed the return covering that withdrawal. A folder of scanned receipts organized by year is enough.

What Counts as a Qualified Medical Expense

Section 213(d) defines the category broadly: amounts paid for the diagnosis, treatment, or prevention of disease, and costs that affect the structure or function of the body.⁷ That takes in doctor visits, prescriptions, dental work, and eyeglasses, and also acupuncture, chiropractic care, hearing aids, and menstrual care products. Over-the-counter medications and menstrual products have been eligible since 2020 without a prescription.

Some categories trip people up. Health insurance premiums generally don’t qualify. The exceptions are COBRA continuation coverage, long-term care insurance up to age-based limits, and premiums for coverage while you are receiving unemployment benefits.⁵ Cosmetic procedures don’t qualify unless they correct a deformity from disease, injury, or a congenital condition.

What Happens If You Take Money Out for Something Else

A non-qualified withdrawal gets added to your gross income for the year, and the IRS adds a 20% tax on top of the regular income tax owed.² That is double the 10% early withdrawal penalty most retirement accounts carry.

Three exceptions eliminate the 20% penalty, though regular income tax still applies:

You are 65 or older. From that point on, non-medical withdrawals are taxed as ordinary income with no additional penalty, and the HSA behaves much like a traditional IRA.²
You are disabled within the meaning of IRC Section 72(m)(7).²
The distribution is made after the account holder’s death.

All distributions, qualified or not, are reported on Form 8889 filed with your return.⁴

Undoing an Accidental Withdrawal

If you pull money out for a non-qualified purpose by mistake, the IRS allows a limited window to return it without owing tax or the 20% penalty. The repayment has to be made no later than April 15 following the first year you knew or should have known the distribution was a mistake.⁸ A filing extension does not extend that repayment deadline.³

The withdrawal must have resulted from a genuine mistake of fact due to reasonable cause. Changing your mind doesn’t count. Contact your HSA custodian and use their mistaken distribution form so the return is coded correctly: the custodian should not treat the money as a new contribution (which could push you over the annual limit) and should correct any Form 1099-SA already filed.³ Some custodians impose their own 60-day internal deadline for processing corrections, so act quickly once you spot the error.

The Practical Takeaway

If you need cash and were hoping to tap your HSA the way you might tap a 401(k) with a participant loan, that door is closed and the penalty for forcing it open is losing the entire account. Before treating the balance as unreachable, though, check what you have already paid out of pocket for medical, dental, and vision care since the account was opened. Any of those bills you covered with non-HSA money is a receipt you can use to reimburse yourself tax-free right now, at any dollar amount up to what you actually spent. That is the closest thing to borrowing from your HSA the rules allow, and unlike a loan, you never have to pay it back.

1
Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions
2
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
3
Internal Revenue Service. Instructions for Forms 1099-SA and 5498-SA
4
Internal Revenue Service. Instructions for Form 8889 (2025)
5
Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
6
Internal Revenue Service. How Long Should I Keep Records
7
Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
8
Internal Revenue Service. Distributions for Qualified Medical Expenses (Continued) – IRS Courseware