You can withdraw money from your HSA, but the tax treatment depends on what you spend it on

A health savings account is yours to withdraw from whenever you want. The account belongs to you, not your employer or the bank. But the IRS treats withdrawals differently depending on whether you use the money for may have access to medical expenses or for something else.

If you withdraw money to pay for a may have access to medical expense — a doctor visit, prescription, dental work, vision care, or certain medical equipment — you pay no tax on that withdrawal, ever. If you withdraw money for any other reason, you owe income tax on the amount you take out, plus a 20 percent penalty tax on top of that, unless you are over 65 or disabled.

The mechanics of the withdrawal itself are straightforward. You contact your HSA provider, request the funds, and they send the money to you or directly to a provider. The harder part is knowing which expenses count as may have access to and keeping records to prove it if the IRS asks.

Key Takeaways

  • Withdrawals for may have access to medical expenses carry no tax or penalty, but you must keep receipts and documentation to prove the expense was medical.
  • Non-medical withdrawals are taxed as income plus a 20 percent penalty, unless you are over 65 or disabled, in which case only income tax applies.
  • may have access to expenses include doctor visits, prescriptions, dental and vision care, medical equipment, and some over-the-counter items, but not health insurance premiums or cosmetic procedures.
  • You can withdraw money directly from your HSA provider by check, debit card, or electronic transfer, and some providers let you pay providers directly from the account.
  • The IRS does not require you to submit receipts when you withdraw, but you must keep them for at least three years in case of an audit.

What counts as a may have access to medical expense

The IRS publishes a list of may have access to medical expenses in Publication 969. The broad categories are straightforward: doctor and dentist visits, hospital care, prescription drugs, vision and hearing care, and medical equipment like wheelchairs or blood pressure monitors. But the details matter, because some things that sound medical are not covered, and some things that do not sound medical are.

Prescription drugs are covered. Over-the-counter drugs are covered only if you have a prescription for them — so a prescription for ibuprofen counts, but buying ibuprofen off the shelf does not. Insulin is an exception: you can buy insulin over the counter without a prescription and still withdraw HSA funds for it. Dental work is covered, including cleanings, fillings, and orthodontia. Vision care is covered: eye exams, glasses, contact lenses, and laser eye surgery all count. Hearing aids and hearing tests count. Mental health treatment, including therapy and psychiatric medication, counts.

Things that do not count: cosmetic procedures (unless they are medically necessary, which requires documentation), health insurance premiums (with narrow exceptions for COBRA, long-term care insurance, and health insurance while you are receiving unemployment benefits), and most wellness or fitness expenses. Gym memberships do not count, even if your doctor recommends exercise. Vitamins and supplements do not count unless they treat a specific diagnosed condition and you have a prescription.

How to request a withdrawal from your HSA provider

The process depends on your provider and the type of withdrawal you want. Most HSA providers offer multiple ways to access your money: a debit card linked to the account, checks, electronic transfer to your bank account, or direct payment to a medical provider.

If your HSA provider issued you a debit card, you can use it at the point of sale when you pay a doctor, pharmacy, or other medical provider. The transaction is recorded and the money comes directly from your HSA. This is the fastest method and requires no paperwork at the time of withdrawal. You still need to keep the receipt.

If you want to transfer money to your personal bank account, log into your HSA provider's website or call them and request an electronic transfer or check. Most providers process electronic transfers within one to three business days. Some charge a small fee for transfers; check your account agreement.

Some providers let you submit a claim for reimbursement: you pay a medical expense out of pocket, then submit the receipt to your HSA provider and they send you the money. This method is slower — typically two to four weeks — but it lets you keep money in the HSA longer if you do not need it when ready.

Tax consequences of non-medical withdrawals

If you withdraw money from your HSA for something other than a may have access to medical expense, you owe income tax on the full amount you withdraw, at your ordinary tax rate. On top of that, you owe a 20 percent penalty tax. So if you withdraw $1,000 for a non-medical reason and your tax bracket is 22 percent, you would owe $220 in income tax plus $200 in penalty tax, for a total of $420 in taxes on that $1,000.

There are two exceptions. If you are over 65, the 20 percent penalty goes away — you still owe income tax, but not the penalty. If you are disabled (as defined by the IRS), the penalty also goes away. In both cases, you still owe income tax on the withdrawal.

The IRS does not require you to report which withdrawals are medical and which are not when you take the money out. But you must keep records. If you are audited and cannot show that a withdrawal was for a may have access to expense, the IRS will assess the penalty retroactively, plus interest.

Record-keeping and IRS documentation

You do not have to submit receipts to your HSA provider when you withdraw money. But you must keep them for yourself. The IRS requires you to keep records that show the date of the expense, the name of the provider, the amount, and what the expense was for. A receipt from a pharmacy, doctor's office, or hospital bill works. A credit card statement alone does not, because it does not show what the charge was for.

Keep records for at least three years after you file your tax return for the year in which you made the withdrawal. The IRS can go back further if they suspect fraud, but three years is the standard audit window. Digital copies are fine — photograph your receipts or scan them and store them in a folder on your computer or cloud storage.

If you use your HSA debit card, the transaction description on your statement may not be detailed enough to prove what you bought. A receipt from the pharmacy or doctor's office is better. If you pay a provider directly from your HSA and they send you an invoice or bill, keep that too.

What happens to unused HSA money

Unlike a flexible spending account (FSA), an HSA does not have a "use it or lose it" rule. Money you do not spend in a given year stays in the account and rolls over to the next year. You can let it accumulate indefinitely. Some people treat their HSA as a long-term investment account, contributing the maximum each year and only withdrawing for major medical expenses.

If you change jobs or leave your job, your HSA stays with you. The account is portable — it does not belong to your employer. You can keep the same HSA or roll it over to a new provider. You can continue to contribute to it as long as you are enrolled in a high-deductible health plan, even if you are self-employed.

Frequently Asked Questions

Can I withdraw money from my HSA to pay for my spouse's medical expenses?

Yes. HSA funds can be used to pay for may have access to medical expenses of you, your spouse, and your dependents, even if they are not covered under your health plan. You still need receipts showing the expense was medical.

What if I withdraw money and later find out it was not a may have access to expense?

You owe income tax and the 20 percent penalty on that withdrawal. You cannot undo it. If you discover the mistake before filing your tax return, you can report it correctly on your return. If you discover it after, you may owe additional tax and interest.

Can I withdraw money from my HSA to pay for my health insurance premium?

Not usually. HSA funds cannot be used to pay for regular health insurance premiums. Exceptions exist for COBRA continuation coverage, long-term care insurance, and health insurance premiums while you are receiving unemployment benefits — but these are narrow cases. Ask your HSA provider or a tax professional if your situation qualifies.

Do I have to report HSA withdrawals on my tax return?

Your HSA provider sends you a Form 1099-SA each year showing total withdrawals. You report this on your tax return. If all withdrawals were for may have access to expenses, you do not owe tax. If any were non-medical, you report the taxable amount and the penalty on Form 8889.

What if my HSA provider goes out of business?

Your money is protected. HSA funds are held in trust and are not the property of the provider. If a provider closes, your account is transferred to another provider or you receive your balance. Contact your provider or the bank holding the account if you are unsure what happens next.