What are the tax implications of HSA distributions?

HSA distributions used for qualified medical expenses are not included in your taxable income, providing valuable tax-free benefits.

If you use HSA funds for non-qualified expenses, that portion becomes taxable income and you may have to pay an additional 20% penalty tax.

The IRS requires you to report all HSA distributions on Form 8889, but the portion used for qualified medical expenses will not be included in your taxable income.

HSA distributions are reported on the 1099-SA form, but the amount used for qualified medical expenses is excluded from your total taxable income.

There is no time limit on when you can use HSA funds for qualified medical expenses - you can reimburse yourself years later for eligible costs.

If you make an HSA distribution mistake, you can correct it by repaying the funds to your HSA within the same tax year to avoid taxes and penalties.

HSA distributions remain tax-free even after age 65, as long as the funds are used for qualified medical expenses.

You can use your HSA to pay for Medicare premiums, including Part B, Part D, and Medicare Advantage plans, without incurring taxes or penalties.

Unused HSA funds roll over year-to-year, allowing your account to grow tax-deferred and be used for future medical expenses.

If you have an HSA-eligible high-deductible health plan, you can make tax-deductible contributions to your HSA, providing additional tax savings.

HSA distributions are not subject to the 3.8% net investment income tax that can apply to other types of investment income.

In the case of an account holder's death, the HSA can be passed on to a spouse tax-free, or to non-spouse beneficiaries who will owe income taxes on the distribution.