Can You Use Your HSA Card at an ATM?

A Health Savings Account (HSA) offers a way to manage healthcare costs with tax advantages. This financial tool is designed for individuals enrolled in a high-deductible health plan (HDHP), allowing them to save and pay for qualified medical expenses with pre-tax dollars. The funds within an HSA can grow tax-free, and withdrawals remain untaxed when used for eligible healthcare expenditures. This triple tax advantage makes HSAs a beneficial long-term savings vehicle for healthcare.

Using Your HSA Card at an ATM

Many wonder if they can use their HSA card at an ATM. The answer is generally yes; HSA cards function similarly to debit cards and often require a Personal Identification Number (PIN) for transactions. You can withdraw cash from an ATM using your HSA card to reimburse yourself for qualified medical expenses you have already paid out-of-pocket.

However, it is important to understand that while cash withdrawals are possible, the funds must still be used for qualified medical expenses to maintain their tax-advantaged status. ATM operators may charge fees for cash withdrawals, similar to standard debit card transactions, which could reduce the effective amount of your withdrawal. Withdrawing cash is primarily useful in situations where a direct card payment is not feasible, such as when a healthcare provider only accepts cash, or for reimbursing yourself for past expenses.

Understanding Qualified Medical Expenses

A “qualified medical expense” is an expenditure defined by the Internal Revenue Service (IRS) that can be paid with HSA funds without taxes or penalties. These expenses are primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for affecting any structure or function of the body. Common examples include doctor visits, prescription medications, dental care, and vision care. Over-the-counter medications and menstrual products are also considered qualified expenses.

However, not all health-related costs qualify; for instance, cosmetic procedures or general health expenses like gym memberships are typically not considered eligible. The IRS provides guidance on qualified medical expenses in Publication 502. It is the account holder’s responsibility to determine if an expense is qualified.

Tax Consequences of Non-Qualified Withdrawals

Using HSA funds for non-qualified medical expenses carries financial repercussions. Non-qualified withdrawals are subject to ordinary income tax, meaning the amount withdrawn will be added to your gross income for the tax year.

In addition to income tax, a 20% penalty tax is generally applied to non-qualified distributions if the account holder is under age 65. For example, a $1,000 non-qualified withdrawal could result in $200 in taxes and an additional $200 penalty, reducing the usable amount to $600. This penalty is waived for individuals aged 65 or older, or if they become disabled, though the withdrawals remain subject to income tax if not used for qualified medical expenses.

Documentation and Other Payment Methods

Maintaining records is important for HSA users, especially when withdrawing cash or paying out-of-pocket for later reimbursement. The IRS requires account holders to keep documentation, such as receipts and invoices, to prove HSA distributions were used for qualified medical expenses. These records are important for an IRS audit, as failure to provide proof can lead to taxes and penalties.

While cash withdrawals are an option, direct payment methods are often simpler and preferred. HSA debit cards can be used directly at healthcare providers, pharmacies, and other medical merchants. Alternatively, you can pay for qualified expenses out-of-pocket and then reimburse yourself from your HSA later, even years later, provided the expense was incurred after your HSA was established. This reimbursement can be done through an online transfer from your HSA to a linked bank account or by writing yourself a check from your HSA.