Can I Withdraw Cash From an HSA Debit Card?

Health Savings Accounts (HSAs) stand as a valuable tool for individuals managing healthcare costs within a high-deductible health plan. These accounts offer a tax-advantaged way to save and spend money on eligible medical expenses, providing benefits that can extend over many years. A common feature of HSAs is the associated debit card, which offers a convenient method for accessing funds directly at the point of service. This card simplifies payments for healthcare-related purchases, making it similar in function to a standard bank debit card for everyday transactions.

Understanding Cash Withdrawals from Your HSA Debit Card

Accessing cash from your Health Savings Account (HSA) debit card is possible, much like withdrawing from a regular checking account. Account holders can obtain cash through Automated Teller Machines (ATMs) or by requesting cash back at point-of-sale terminals if the merchant supports this option. Some HSA providers also permit cash advances at bank branches, though limits and fees may apply depending on the institution.

While withdrawing cash provides flexibility, remember these funds originate from an HSA and retain their designation for qualified medical expenses. Obtaining cash does not alter the account’s underlying purpose. This cash is useful when a healthcare provider only accepts cash payments, or for reimbursing oneself or another for out-of-pocket medical expenses.

Defining Qualified Medical Expenses

The Internal Revenue Service (IRS) defines what constitutes a “qualified medical expense” for Health Savings Account (HSA) purposes. These are costs primarily incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Funds from an HSA, including cash withdrawals, must be used for expenses incurred after the HSA was established.

Common examples of qualified medical expenses include doctor visits, hospital services, prescription medications, dental care like cleanings and braces, and vision care including eyeglasses, contact lenses, and laser eye surgery. Certain over-the-counter medications and menstrual products also qualify. Expenses not considered qualified include cosmetic procedures, general health supplements unless prescribed for a specific medical condition, and health club memberships not prescribed for a particular medical issue.

Tax Implications of Non-Qualified Use

Using Health Savings Account (HSA) funds for expenses that do not meet the IRS definition of a qualified medical expense carries financial repercussions. If HSA funds are withdrawn for non-qualified purposes, the amount is subject to ordinary income tax. This means tax benefits on contributions and growth are effectively reversed for that distribution.

In addition to income tax, an extra 20% penalty tax applies to non-qualified distributions if the account holder is under age 65. For instance, a non-qualified withdrawal of $1,000 by someone under 65 could result in $200 in penalties plus income tax, reducing the amount available. This 20% penalty does not apply if the distribution occurs after the account holder reaches age 65, or in cases of disability. The HSA account holder must demonstrate that distributions were for qualified medical expenses.

Essential Record Keeping for HSA Funds

Maintaining records for all Health Savings Account (HSA) transactions is important for compliance and to avoid tax issues. While the IRS does not require submission of receipts with your tax return, you must retain them to substantiate that distributions were for qualified medical expenses in the event of an audit. This documentation serves as proof that the funds were used appropriately.

Key records to keep include receipts, invoices from healthcare providers, and Explanation of Benefits (EOB) statements from your health insurer. Note details such as the date of service, a clear description of the service or product, the provider’s name, and the amount paid. For cash withdrawals, where there is no direct transaction record linking the debit card to a specific medical service, these detailed records are important. Records should be kept for at least three years from the tax filing date, or longer if your tax return remains open to audit.