Can You Withdraw Money From an HSA Debit Card?

A Health Savings Account (HSA) serves as a tax-advantaged savings and spending vehicle for healthcare costs. It allows individuals with high-deductible health plans (HDHPs) to save money for medical expenses on a pre-tax basis. It offers a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free.

Using Your HSA Debit Card for Qualified Expenses

The most common way to use an HSA is through its associated debit card for direct payment of qualified medical expenses. This card functions much like a standard debit card, allowing you to pay for services at doctor’s offices, pharmacies, or hospitals. The debit card ensures immediate access to funds for eligible healthcare needs.

This direct payment method simplifies covering various out-of-pocket medical costs, such as copayments, deductibles, and prescription medications. The Internal Revenue Service (IRS) defines qualified medical expenses. It is important to retain receipts for all transactions, as the IRS requires confirmation that distributions are for qualified medical expenses.

Accessing Cash from Your HSA

It is possible to withdraw cash from your HSA. One method involves using your HSA debit card at an ATM. When making an ATM withdrawal, you may encounter a transaction fee, in addition to any fees charged by the ATM operator.

Another way to access HSA funds is through reimbursement. You can pay for qualified medical expenses using your personal funds, such as a credit card or checking account. Afterward, you can reimburse yourself by transferring funds from your HSA to your personal bank account. This method is often used when an HSA debit card is not accepted or if you prefer to earn credit card rewards before drawing from your HSA.

Non-Qualified Withdrawals

Using HSA funds for expenses that are not qualified medical expenses carries significant financial consequences. The amount withdrawn for non-qualified purposes becomes taxable income and must be reported on IRS Form 8889. These funds are subject to your ordinary income tax rate.

An additional penalty is imposed on non-qualified withdrawals if the account holder is under age 65. This penalty is 20% of the non-qualified amount. For instance, a $500 non-qualified withdrawal would incur a $100 penalty, plus the applicable income tax.

The 20% penalty does not apply if the account holder is age 65 or older, becomes disabled, or upon their death. In these circumstances, non-qualified withdrawals are still subject to ordinary income tax but are exempt from the additional penalty.