Can You Withdraw From an HSA? Taxes, Penalties, and Medicare

You can take money out of your Health Savings Account whenever you want and for any reason, but the HSA withdrawal rules decide what that withdrawal costs you. Spend the money on qualified medical care for yourself, your spouse, or your dependents and the distribution is completely tax-free. Spend it on anything else and the amount is added to your taxable income, and if you are under 65 the IRS tacks on an additional 20 percent tax.¹²

What Counts as a Tax-Free Withdrawal

Distributions are excluded from your gross income when they pay for qualified medical expenses for you, your spouse, or your dependents.² The IRS uses the same broad definition it applies to the medical expense deduction, which covers most costs of diagnosis, treatment, and prevention that insurance doesn’t reimburse.¹

The everyday expenses that qualify include:

Doctor, hospital, lab, and specialist bills
Dental and vision care, including cleanings, fillings, eye exams, glasses, contacts, and orthodontics
Prescription medications
Over-the-counter drugs and menstrual care products, with no prescription required since 2020³
Hearing aids, wheelchairs, crutches, and prosthetics
Home modifications like ramps, widened doorways, and grab bars when medically necessary

Insurance premiums usually don’t qualify, but a few do. You can pay tax-free from your HSA for long-term care insurance up to age-based annual limits, COBRA continuation coverage, and health coverage while you are receiving unemployment. Once you turn 65 you can also pay Medicare Part B, Part D, and Medicare Advantage premiums out of the account. Medigap premiums do not qualify at any age.¹

Expenses That Look Medical but Don’t Qualify

Plenty of health-adjacent spending is specifically excluded, and using HSA money for any of it is treated the same as buying a television with the funds.⁴ The IRS excludes:

Cosmetic procedures such as face lifts, liposuction, hair transplants, teeth whitening, and electrolysis, unless they correct a deformity from disease, injury, or a congenital condition
Gym memberships, swimming lessons, and fitness classes, even if a doctor recommends them for general health
Vitamins and nutritional supplements, unless prescribed to treat a specific diagnosed condition
General health insurance premiums outside the narrow exceptions above
Funeral and burial costs
Childcare for a healthy child

The pattern: if the spending is really about appearance, general wellness, or personal comfort rather than diagnosing or treating a condition, it probably isn’t qualified.

What a Non-Medical Withdrawal Actually Costs

Take money out for a non-qualified purpose and the full amount is added to your gross income for the year, reported on IRS Form 8889 with your return.¹ On top of ordinary income tax, the IRS imposes an additional 20 percent tax on the non-qualifying amount.²

Say you pull $5,000 out to pay for a vacation. The 20 percent additional tax alone is $1,000. Add federal income tax at a 22 percent marginal rate and the combined bill is roughly $2,100. That is before any state income tax. Non-medical HSA withdrawals before age 65 are one of the more expensive ways to get at your own money.

When the 20 Percent Penalty Is Waived

The additional 20 percent tax drops away in three situations, even when the withdrawal isn’t for medical care:²

You reach age 65. Non-medical withdrawals are still taxed as ordinary income, but the penalty is gone. This works similarly to a traditional IRA or 401(k).
You become disabled under the IRS definition. The penalty is permanently removed.
You die. Distributions to your beneficiary are not subject to the additional tax.

Ordinary income tax still applies in each of these cases when the money isn’t used for qualified medical expenses.¹ Qualified medical withdrawals remain fully tax-free regardless of your age, so using HSA money for healthcare costs first is still the cheapest option.

Withdrawals After 65 and Medicare

Turning 65 changes the account in two ways. The 20 percent penalty on non-medical withdrawals disappears. And if you enroll in Medicare, you can no longer contribute new money, though you can keep spending the existing balance.⁵

Your balance still pays tax-free for qualified medical costs, and after 65 the list expands to include Medicare Part B, Part D, and Medicare Advantage premiums, plus deductibles and copays. Medigap premiums are still excluded.¹

The Six-Month Medicare Lookback

If you apply for Medicare Part A after turning 65, coverage is backdated up to six months, but no earlier than your 65th birthday. Any HSA contributions during that retroactive period become excess contributions and can trigger a 6 percent excise tax for each year they stay in the account.⁵ If you plan to enroll at 65, stop contributing the month before you turn 65. If you plan to enroll six or more months later, stop contributing six months before the month you apply.

Reimbursing Yourself Later

There is no deadline for reimbursing yourself from your HSA for a qualified medical expense. The only requirement is that the expense was incurred after the account was established. Anything before that date never qualifies, no matter how long you wait.¹

That is why many people pay current medical bills out of pocket, let the HSA balance stay invested, and take tax-free reimbursements years later. You could pay a bill today, hold the receipt for a decade, and pull the same dollar amount out tax-free whenever you want, as long as your documentation holds up.

How to Actually Take the Money Out

Most custodians offer several access methods:

An HSA debit card for point-of-sale payment at pharmacies, doctors’ offices, and other providers
Online transfer from the custodian’s portal to your personal bank account, usually one to three business days
A check payable to you or directly to a provider
A paper distribution form, with processing times generally three to seven business days

You can either pay the provider directly from the HSA or pay out of pocket and reimburse yourself later. Both paths qualify for tax-free treatment as long as the underlying expense qualifies and was incurred after the account was opened.¹ Your custodian does not check whether a specific expense qualifies at the time of withdrawal. That job is yours.

Records You Need to Keep

Because the custodian doesn’t verify anything, the IRS places the burden on you to prove each distribution was used properly. If you are audited, you will need to show what the money paid for and when. For every withdrawal, keep:

Receipts or invoices from the provider or pharmacy showing the date of service, amount, and description
Explanation of Benefits statements from your insurer showing what was and wasn’t covered
Proof of payment, such as a bank or credit card statement, HSA debit card record, or canceled check

Report distributions on IRS Form 8889 with your annual return.⁶ The IRS generally has three years from the filing date to audit, extending to six years if more than 25 percent of gross income goes unreported.⁷ Since you can reimburse yourself for old expenses indefinitely, hold HSA-related receipts for as long as the account exists rather than the standard three-year window.

A Note for California and New Jersey Residents

Most states follow the federal treatment. California and New Jersey do not. Residents of those two states owe state income tax on HSA contributions, investment earnings, and withdrawals, even when the withdrawal is for a qualified medical expense. If you live in either state, factor that state-level cost into any withdrawal decision.

1
Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
2
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
3
Internal Revenue Service. IRS Outlines Changes to Health Care Spending Available Under CARES Act
4
Internal Revenue Service. Publication 502 (2025), Medical and Dental Expenses
5
Medicare.gov. Medicare and You Handbook 2026
6
Internal Revenue Service. Instructions for Form 8889
7
Internal Revenue Service. Topic No. 305, Recordkeeping