Yes—HSA funds can be taxed if they’re used for anything other than qualified medical expenses. While HSAs offer great tax benefits, using the money incorrectly comes with consequences.
đź’Ą When HSA Withdrawals Are Taxed:
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The amount is included in your taxable income
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If you’re under age 65, you’ll also pay a 20% penalty
Example: If you withdraw $1,000 to buy a new laptop, you’ll owe taxes on that $1,000—and possibly a $200 penalty if you’re not yet 65.
âś… When Non-Medical Use Is Allowed:
Once you turn 65, you can withdraw HSA funds for any reason without the 20% penalty.
But you’ll still pay income tax on non-medical withdrawals—just like with a traditional IRA.
🧠Tip:
As long as you use your HSA for qualified medical expenses, you’ll never pay taxes or penalties on the money—making it one of the most powerful savings tools available.