How are distributions taxed or penalized?
A. Distributions from your HSA for qualified medical expenses for you, your spouse or dependents are not taxable. All other distributions are taxable as income and are subject to a 10-percent penalty tax on the amount withdrawn. You will not have to pay the penalty on: Distributions made after your death or disability (disability rule only applies if you are disabled before age 65) Distributions made after age 65 for any reason. Any reimbursement from your HSA for an ineligible expense is subject to IRS guidelines. Consult your tax advisor or the IRS for additional information on taxation of HSA distributions.
Any distribution from your HSA for qualified medical expenses for you, your spouse or dependents are not taxable. All other distributions are taxable and are subject to a 10% tax on the amount withdrawn. Exceptions to this rule include: • Distributions made after your death or disability*. • Distributions made after age 65 for any reason. Please note that distributions for qualified medical expenses must be incurred only after your HSA has been established. However, you can open an HSA to cover 2004 qualified medical expenses if: • The HSA account is opened by April 15, 2005. • You had a HDIP in 2004. • The expense was incurred after the HDIP went into effect in 2004. *This applies only if you are disabled before age 65. The custodian or trustee may request a copy of a certificate from your physician that you meet the definition of disability under IRC Section 72(m)(7).
