Can You Use an HSA Card at an ATM?

A Health Savings Account (HSA) is a tax-advantaged savings account specifically designed for individuals enrolled in a high-deductible health plan (HDHP). It allows you to save and pay for qualified medical expenses with tax-free dollars. While primarily used for direct payments, an HSA card can generally be used at an ATM, but its purpose is specific and comes with important considerations.

Using Your HSA Card at an ATM

Using an HSA card at an ATM is similar to using a regular debit card. You insert the card and enter your Personal Identification Number (PIN). When prompted for the account type, select “checking account” to proceed with the cash withdrawal. This allows access to funds for eligible purposes.

Purpose of Withdrawals

The primary purpose of withdrawing cash from an HSA is to reimburse yourself for qualified medical expenses that you have already paid out-of-pocket. You can use personal funds for healthcare costs, then later withdraw money from your HSA to cover those expenses. Qualified medical expenses are broadly defined by the IRS. They include a wide range of services and products such as doctors’ fees, prescription medications, dental care, vision care, and certain over-the-counter items.

Tax Implications of Withdrawals

Withdrawals from an HSA are tax-free and penalty-free if they are used exclusively for qualified medical expenses. However, if funds are withdrawn for non-qualified expenses, significant tax consequences apply. For individuals under age 65, non-qualified withdrawals are subject to ordinary income tax on the amount withdrawn and an additional 20% penalty. This means a $500 non-qualified withdrawal could incur a $100 penalty in addition to being taxed as regular income.

The tax rules change once the HSA account holder reaches age 65. At this age, the 20% penalty for non-qualified withdrawals is waived. However, any withdrawals used for purposes other than qualified medical expenses will still be subject to ordinary income tax. This flexibility after age 65 allows HSAs to function somewhat like a retirement savings vehicle, though using funds for qualified medical expenses always retains the tax-free benefit.

Important Practical Considerations

When using an HSA card at an ATM, it is important to be aware of potential fees. Many HSA custodians or the ATM operators themselves may charge a fee for cash withdrawals, similar to standard bank accounts. These fees can range from about $1.50 to $2.50 per transaction, and some ATM networks may charge their own additional fees. Checking with your HSA provider regarding their specific fee schedule is advisable.

Most HSA cards have daily limits on ATM withdrawals and overall debit card transactions. Some providers may impose an ATM withdrawal limit of around $300 within a 24-hour period. These limits are typically in place as a safeguard against fraudulent activity.

Maintaining meticulous records is crucial for HSA account holders. The IRS requires that you keep records sufficient to demonstrate that distributions were exclusively for qualified medical expenses, were not reimbursed from other sources, and were not claimed as an itemized deduction. While you do not need to submit these records with your tax return, retaining receipts and documentation for all qualified medical expenses is essential in case of an IRS audit.