If you accidentally use HSA funds for something that isn’t an IRS-qualified medical expense, the amount is treated as taxable income, and if you’re under age 65, you’ll also owe a 20% penalty.
💥 Example:
You withdraw $500 from your HSA to pay for a gym membership, thinking it qualifies.
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If you’re under 65, you’ll pay income tax on the $500 plus a $100 penalty
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If you’re 65 or older, you’ll only pay income tax—no penalty
✅ Can You Fix It?
Yes—if you catch the mistake in the same tax year, you may be able to return the funds to your HSA by the tax filing deadline and avoid penalties. This is called a reversal or mistaken distribution correction, and some HSA providers allow it with documentation.
🧠 Tip:
Always double-check before using HSA funds, and keep receipts in case you’re ever audited.