Can I Take Money Out of My HSA for Non-Medical Expenses?

You can take money out of an HSA for non-medical expenses at any time, but the cost is steep before age 65: the withdrawal is added to your taxable income for the year, and the IRS charges an additional 20% penalty on top of the income tax.¹ After 65, the penalty disappears and the account behaves much like a traditional IRA. Three narrow situations remove the penalty earlier, and one common misunderstanding about what counts as “medical” is worth clearing up before you decide a withdrawal is non-qualified at all.

What a Non-Medical Withdrawal Actually Costs

Any HSA distribution not spent on qualified medical expenses is added to your gross income for that tax year and taxed at your ordinary rate. The IRS then adds a 20% additional tax on the non-qualified portion.²

Put numbers on it. If you pull $5,000 out for a vacation and you’re in the 22% federal bracket, you’ll owe roughly $1,100 in income tax plus a $1,000 penalty. That’s $2,100 gone, or 42% of the withdrawal. The penalty applies no matter why you took the money or how badly you needed it, and it applies whether you took a lump sum or small amounts across the year.

One point of reassurance: adding this distribution to your return doesn’t raise the rate on the rest of your income. Federal brackets are marginal, so only the portion of income sitting in a higher bracket is taxed at the higher rate. A non-medical HSA withdrawal can push part of your income up a bracket, but your salary below that line keeps its old rate.

When the 20% Penalty Goes Away

Three situations remove the 20% additional tax. Income tax still applies in each one.

Age 65

Once you turn 65, non-medical withdrawals no longer carry the 20% penalty. The statute pegs this to the Medicare eligibility age in Section 1811 of the Social Security Act.¹ After that birthday you can spend HSA dollars on anything at all, and you’ll owe only ordinary income tax on the amount. Because the withdrawal counts as income, it’s worth spacing distributions so a large one doesn’t push you into a higher bracket in a single year.

A related point about spending after 65: Medicare Part B and Part D premiums are qualified medical expenses and can come out tax-free. Medicare supplement (Medigap) premiums are not qualified.³ Paying Medigap premiums from your HSA is treated like any other non-medical withdrawal after 65: no penalty, but the amount is taxable.

Disability

The 20% penalty is waived at any age if you become disabled. The tax code uses the definition in Section 72(m)(7): you must be unable to engage in any substantial gainful activity because of a physical or mental impairment expected to result in death or to be of long-continued and indefinite duration.⁴ Documentation from a medical provider is needed to support the claim, and a temporary or short-term condition won’t meet the standard.

Death of the Account Holder

Distributions to beneficiaries after the account holder dies are not subject to the 20% penalty. What happens next depends on who inherits. A surviving spouse named as beneficiary takes over the HSA as their own and can keep using it tax-free for qualified medical expenses.¹ A non-spouse beneficiary is treated much less favorably: the account stops being an HSA on the date of death, and its full fair market value becomes taxable income to the beneficiary in that year. A non-spouse can reduce the taxable amount by paying any qualified medical expenses the deceased still owed, as long as those bills are paid within one year of the date of death.²

Check Whether It’s Really Non-Medical First

Before you accept the tax hit, make sure the expense actually is non-qualified. The list of qualified medical expenses is broader than most people expect. It covers amounts paid for the diagnosis, treatment, or prevention of disease and for treatments affecting any structure or function of the body: doctor visits, hospital bills, prescription drugs, dental work, vision care including glasses and contacts, and mental health services.³

Some qualifying expenses surprise people: breast pumps and lactation supplies, service animals along with their food and veterinary care, acupuncture, and home modifications made for a medical condition such as wheelchair ramps. Expenses that don’t qualify include gym memberships, purely cosmetic surgery, and, for most people still working, health insurance premiums (with exceptions for COBRA, long-term care insurance, and Medicare premiums after 65).³

One boundary catches account holders off guard: the expense must have been incurred after the HSA was established. A legitimate medical bill from before the account existed doesn’t qualify.²

You Can Reimburse Yourself for Old Medical Bills

There is no deadline for reimbursing yourself from your HSA for a qualified medical expense. If you paid a $3,000 dental bill out of pocket five years ago and your HSA was open at the time, you can pull $3,000 from the account today, tax-free, as reimbursement.² Before you take a taxable non-medical withdrawal, check whether you have any old, undocumented medical costs sitting on receipts. The only requirement is that the expense was incurred after the HSA existed and that you can prove it if audited. Keep the receipts; without them, the distribution can’t be defended.

Fixing a Withdrawal You Made by Mistake

If you took a distribution thinking the expense qualified and later found out it didn’t, you may be able to return the money and undo both the income tax and the 20% penalty. The IRS allows repayment of a mistaken distribution as long as the mistake was due to reasonable cause, meaning you genuinely believed the expense qualified.⁵

The deadline to return the funds is the tax filing due date, without extensions, for the year you first knew or should have known about the error. Repay within that window and the distribution is not included in your gross income, the penalty doesn’t apply, and the repayment doesn’t count as an excess contribution. Your HSA custodian isn’t required to accept the return, though. If they do, they can rely on your statement that the distribution was a mistake.⁵

Reporting the Withdrawal on Your Taxes

After any year in which you take an HSA distribution, your custodian issues Form 1099-SA showing the total. You have to file Form 8889 with your tax return whenever you take a distribution, even if every dollar went to qualified medical expenses and even if you’d otherwise have no reason to file.⁶

On Form 8889, Line 14a reports your total distributions for the year and Line 15 shows the amount you spent on qualified medical expenses. The difference is your taxable distribution, which flows to your income and picks up the 20% penalty if you’re under 65 and no exception applies.⁶ Married couples where both spouses received distributions file a separate Form 8889 for each.

Keep every receipt for medical expenses you paid from the HSA. The IRS doesn’t ask for them at filing, but in an audit those records are what stand between you and owing tax plus the penalty on any distribution you can’t document. A folder organized by year, digital or paper, is enough.

1
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
2
Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
3
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
4
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
5
Internal Revenue Service. Instructions for Forms 1099-SA and 5498-SA
6
Internal Revenue Service. Instructions for Form 8889 (2025)