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Distributions from an HSA used exclusively to pay for qualified medical expenses of the accountholder, his or her spouse, or dependents are tax exempt and not included in gross income. In general, amounts retained in an HSA can be used for qualified medical expenses and will be excludable from gross income even if the individual is not currently eligible to make contributions to the HSA.
However, any amount of the distribution not used exclusively to pay for qualified medical expenses of the accountholder, spouse or dependents is includable in gross income of the accountholder. Such distributions are subject to an additional 20% tax on the amount includable, except in the case of distributions made after the accountholder's death, disability, or attaining age 65. |