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.
💥 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.
✅ 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.