Can You Withdraw Cash From an HSA Debit Card?

A Health Savings Account (HSA) is a savings account for managing healthcare costs. It’s a tax-advantaged tool for eligible medical expenses. HSAs are typically paired with high-deductible health plans (HDHPs) to cover out-of-pocket costs before insurance begins. It offers a “triple-tax advantage”: contributions are tax-deductible or pre-tax, funds grow tax-deferred, and withdrawals are tax-free for qualified medical expenses. Funds remain yours, even if you change jobs or retire, providing long-term healthcare savings.

Withdrawing Cash from Your HSA Debit Card

You can withdraw cash from your Health Savings Account using an HSA debit card. This is typically done through an ATM, like a regular bank debit card. At an ATM, select “checking” account option. The HSA provider or ATM owner may charge a transaction fee.

Any cash obtained from your HSA must be used solely for qualified medical expenses. The HSA debit card primarily allows direct payment for eligible healthcare products and services directly at the point of sale, such as at pharmacies, medical offices, or hospitals. This direct payment method eliminates the need for out-of-pocket payments and subsequent reimbursements.

Some HSA providers may impose daily limits on cash withdrawals from ATMs or for cash back transactions. These limits vary significantly, often ranging from a few hundred dollars to several thousand, depending on the institution and the type of transaction. It is advisable to check with your specific HSA administrator for their particular policies and any associated fees.

A common scenario for cash withdrawal is to reimburse yourself for qualified medical expenses that you initially paid for using personal funds. If you incur an eligible medical expense and pay for it out-of-pocket, you can then withdraw the exact amount from your HSA to replenish your personal finances. This strategy allows you to leverage the tax benefits of your HSA even if direct card payment wasn’t feasible at the time of service.

Understanding Qualified Medical Expenses

Qualified medical expenses, as defined by Internal Revenue Service (IRS) guidelines, encompass costs paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for treatments affecting any part or function of the body. These expenses must primarily serve to alleviate a physical or mental defect or illness. The IRS provides extensive guidance on these eligible expenses, notably in IRS Publication 502: Medical and Dental Expenses.

This broad definition covers a wide array of common healthcare services and products. Typical examples include fees for doctor visits, hospital services, and prescription medications. Dental care, ranging from routine cleanings and exams to more involved procedures like fillings, crowns, and orthodontics, generally qualifies. Vision care expenses, such as eye exams, prescription eyeglasses, contact lenses, and even certain eye surgeries, are also commonly eligible.

Beyond these more traditional categories, HSAs can cover various other medical necessities. This includes specific over-the-counter medications and menstrual care products, which were added as qualified expenses by legislative changes in 2020. Furthermore, expenses for durable medical equipment, chiropractic care, acupuncture, and even certain transportation and lodging costs incurred when traveling for medical treatment are considered eligible.

However, it is important to understand that not every health-related expense qualifies. For instance, costs associated with general health improvement, such as gym memberships, or purely cosmetic procedures that are not medically necessary, typically do not meet the IRS criteria. The expense must have a clear and direct connection to the treatment or prevention of a specific medical condition.

Tax Implications and Documentation

Using HSA funds for qualified medical expenses results in tax-free distributions, meaning you do not pay federal income tax on the money withdrawn. This allows individuals to pay for healthcare costs with pre-tax dollars. This tax-free status applies whether you use the HSA debit card directly or reimburse yourself for out-of-pocket expenses.

Withdrawing HSA funds for non-qualified medical expenses carries tax consequences. Non-qualified distributions are subject to federal income tax, as funds were originally contributed on a pre-tax basis. If the account holder is under 65, non-qualified withdrawals incur a 20% penalty tax.

For example, an individual under 65 withdrawing $1,000 for a non-medical expense would owe regular income tax on that $1,000, plus a $200 (20%) penalty. This penalty is waived if the account holder is 65 or older, disabled, or deceased, though income tax still applies to non-qualified uses.

Maintaining records is important for all HSA expenditures. The IRS requires documentation, such as receipts and itemized statements, to show distributions were for qualified medical expenses. These records are essential for an IRS audit, as you must prove each expense’s eligibility.

Retain records for at least as long as your tax return is subject to audit, generally three years, but potentially longer. Digital copies are often acceptable, and many HSA providers offer online tools to manage and store documents. Proper record-keeping ensures compliance and avoids tax liabilities and penalties.