How are funds withdrawn from an HSA taxed?
Funds withdrawn from an HSA that are used exclusively to pay for the qualified medical expenses of the accountholder, spouse, or dependents, are tax exempt and not included in gross income. In general, funds retained in an HSA can be used for qualified medical expenses and will be excludable from gross income even if the individual is not currently eligible to make contributions to the HSA. Any amount of the funds withdrawn are not used exclusively to pay for qualified medical expenses of the accountholder, spouse or dependents is includable in the gross income of the accountholder. Such distributions are subject to an additional 10% tax on the amount includable, except in the case of distributions made after the accountholder’s death, disability, or attaining age 65.
