You withdraw money from an HSA by swiping the account’s debit card at the point of care, paying a provider through the HSA’s online portal, or reimbursing yourself for a bill you already paid out of pocket. Learning how to withdraw from an HSA the right way comes down to two things: the money has to pay for a qualified medical expense to stay tax-free, and you have to keep the receipt in case the IRS ever asks.
The Three Ways to Take Money Out
Debit Card at the Point of Sale
Most HSA providers issue a debit card tied directly to your account balance. Swipe it at the pharmacy, doctor’s office, or hospital and the bill settles in one step with no reimbursement paperwork. Some cards are restricted to merchants coded as healthcare providers, so if a purchase gets declined at a retailer that sells both medical and non-medical items, use one of the other withdrawal methods instead.
Online Bill Pay or Direct Deposit
For bills that arrive after a visit, log in to your HSA provider’s portal. You can enter the provider’s name, address, and amount due and have the HSA send payment directly, or you can request a reimbursement transfer into your linked checking or savings account for a bill you already paid yourself. Save the confirmation number the portal generates.
Paper Distribution Form
If you would rather avoid the portal, print the distribution or reimbursement form from your administrator’s website and mail it in. The administrator processes it and sends a paper check or an electronic transfer. It is slower, but it works.
What the Withdrawal Can Pay For
A withdrawal is tax-free only when it pays for a qualified medical expense, which the IRS defines broadly as amounts spent to diagnose, treat, prevent, or manage a disease or physical condition.1Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts In practice that covers doctor and specialist visits, hospital bills, prescription drugs, insulin, lab work, and diagnostic tests.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
Dental work like cleanings, fillings, and orthodontia qualifies. So do vision expenses such as exams, glasses, and contacts, along with long-term care services and qualified long-term care insurance premiums.3Internal Revenue Service. Publication 502, Medical and Dental Expenses Since the CARES Act took effect in 2020, over-the-counter medications no longer need a prescription to qualify, and menstrual care products like tampons and pads qualify permanently.4Internal Revenue Service. IRS Outlines Changes to Health Care Spending Available Under CARES Act
What does not qualify: cosmetic procedures unrelated to a medical condition, gym memberships, general wellness supplements without a diagnosis behind them, and most health insurance premiums. The premium rule has a few carve-outs. You can use HSA funds tax-free to pay for COBRA continuation coverage, qualified long-term care insurance, health coverage while receiving unemployment benefits, and, after age 65, any health insurance premiums except Medigap policies.1Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
Whose Expenses You Can Cover
Your HSA can pay for qualified medical expenses of your spouse and anyone who qualifies as your dependent under federal tax rules, even if they are not covered by your health insurance.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans The HSA definition of “dependent” is actually broader than what most people put on a tax return. It includes anyone you could have claimed as a dependent even if you didn’t, as long as the only reason you didn’t was that they filed a joint return, had too much gross income, or you yourself could be claimed on someone else’s return.1Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
For children, the dependent must be younger than 19 at the end of the tax year, or younger than 24 if they are a full-time student, must live with you for more than half the year, and must not provide more than half of their own support. As long as the child met those criteria when the expense was incurred, the HSA can cover it.
You Can Reimburse Yourself Years Later
Federal tax law sets no deadline for reimbursing yourself. If you paid a medical bill out of pocket three years ago and your HSA was open at the time, you can withdraw funds today to pay yourself back tax-free.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans The only condition is that the expense was incurred after the account was established.
Some people use this deliberately. They pay medical bills out of pocket, let the HSA balance stay invested for years, and reimburse themselves later once the account has grown. The reimbursement is still tax-free whenever you take it. The catch is that you have to keep the receipts indefinitely and be able to prove the expense was qualified and was not already deducted or reimbursed from somewhere else.
Receipts You Need to Keep
The IRS does not require you to submit receipts when you take money out, but you are responsible for proving every distribution was qualified if you are audited. Save itemized receipts showing the provider’s name, the date of service, and a description of the service or product. Explanation of Benefits statements from your insurance company also help because they show your share of the bill after insurance.
Your HSA administrator reports all distributions to the IRS but does not track whether any individual withdrawal was qualified. That work is yours. Keep records organized by year and hold them as long as the account is open, because the no-deadline rule means a receipt from years ago could still matter on a future return.
How Withdrawals Get Reported
Each January, your HSA administrator sends Form 1099-SA showing total distributions during the prior year. Box 3 carries a distribution code: 1 for normal distributions, 2 for excess contributions returned, 3 for disability, and 4 or 6 for distributions after the account holder’s death.5Internal Revenue Service. Instructions for Forms 1099-SA and 5498-SA
You then file Form 8889 with your federal return. Part II of that form is where you split total distributions into qualified medical expenses and taxable amounts, and it is what the IRS uses to calculate any extra tax on non-qualified withdrawals.6Internal Revenue Service. Instructions for Form 8889 If you took any distributions during the year, Form 8889 is required even when every dollar went to medical expenses.
Non-Qualified Withdrawals and the 20% Penalty
Pull money out for anything that is not a qualified medical expense and the amount gets added to your taxable income for the year, plus a 20% additional tax on top of your regular rate.1Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts The two stack. Someone in the 22% bracket who withdraws $1,000 for a non-medical purchase would owe roughly $420 in combined tax on the distribution.
Three situations remove the 20% penalty:
- Reaching age 65. Non-qualified withdrawals are still taxed as ordinary income but carry no additional penalty. The HSA functions like a traditional retirement account for non-medical spending at that point.
- Disability as defined by the tax code. The penalty is waived on all distributions.
- Death. Distributions after the account holder’s death are exempt from the penalty.
Regular income tax still applies in each of those situations when the withdrawal is not for a qualified expense. Only medical spending comes out fully tax-free.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
If You Withdrew by Mistake
If you took a distribution by mistake or later realized the expense was not actually qualified, you may be able to return the money. The IRS allows repayment of a mistaken distribution when the error was due to a reasonable mistake of fact and you return the funds by the due date of your tax return, not counting extensions, for the year you discovered the error.5Internal Revenue Service. Instructions for Forms 1099-SA and 5498-SA If your administrator accepts the repayment, the distribution is not taxable and no penalty applies. Administrators are not required to accept returned funds, so ask yours before assuming the option is there.
Withdrawals After Age 65 and on Medicare
Turning 65 changes the withdrawal side of the account in one direction only: it becomes more flexible. The 20% penalty on non-qualified withdrawals goes away, so the account can fund non-medical spending at ordinary income tax rates. Tax-free withdrawals for qualified medical expenses continue to work exactly the same way.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
Once you enroll in Medicare, the HSA can pay Medicare Part B premiums, Part D premiums, and Medicare Advantage premiums tax-free. Medigap (Medicare Supplement) premiums are the exception and do not qualify.1Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts Medicare enrollment does stop new contributions, but withdrawals continue for the rest of your life.
A Note on State Taxes
Most states follow the federal treatment, but a handful do not recognize the HSA tax break at all. In those states, contributions are not deductible on your state return and investment earnings inside the account are subject to state income tax. That is a contribution-side and earnings-side issue rather than a withdrawal issue, but if you live in a non-conforming state, check your state’s department of revenue for the adjustments required on your state return.