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Distributions From an HSA: Health Accounts and Taxes (2025 IRS Guide)

This guide covers “Distributions From an HSA” within health accounts and taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

An HSA is a tax-exempt trust or custodial account you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. You must be an eligible individual to contribute to an HSA.

No permission or authorization from the IRS is necessary to establish an HSA. You set up an HSA with a trustee. A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS to be a trustee of individual retirement arrangements (IRAs) or Archer MSAs. The HSA can be established through a trustee that is different from your health plan provider.

Your employer may already have some information on HSA trustees in your area.

Distributions From an HSA

You will generally pay medical expenses during the year without being reimbursed by your HDHP until you reach the annual deductible for the plan. When you pay medical expenses during the year that aren’t reimbursed by your HDHP, you can ask the trustee of your HSA to send you a distribution from your HSA.

You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax. You don’t have to make withdrawals from your HSA each year.

Generally, a distribution is money you get from your HSA. Your total distributions include amounts paid with a debit card and amounts withdrawn from the HSA by other individuals that you have designated. The trustee will report any distribution to you and the IRS on Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA.

Qualified medical expenses.

In general, “qualified medical expenses” means amounts paid by the HSA beneficiary for “medical care” (as defined in Code section 213(d)) for the individual, the spouse of the individual, and any dependent of the individual, but only to the extent the amounts are not compensated for by insurance or otherwise. Amounts paid for menstrual care products are treated as paid for medical care.

For HSA purposes, expenses incurred before you establish your HSA aren’t qualified medical expenses. State law determines when an HSA is established. An HSA that is funded by amounts rolled over from an Archer MSA or another HSA is established on the date the prior account was established.

If, under the last-month rule, you are considered to be an eligible individual for the entire year for determining the contribution amount, only those expenses incurred after you actually establish your HSA are qualified medical expenses.

Qualified medical expenses include those incurred by the following persons.

  1. You and your spouse.

  2. All dependents you claim on your tax return.

  3. Any person you could have claimed as a dependent on your return except that:

    1. The person filed a joint return;

    2. The person had gross income equal to or more than the exemption amount or

    3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s return.

Tip:

For this purpose, a child of parents that are divorced, separated, or living apart for the last 6 months of the calendar year is treated as the dependent of both parents whether or not the custodial parent releases the claim to the child’s exemption.

Caution:

You can’t deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the tax-free distribution from your HSA.

Insurance premiums.

You may not use HSA funds to pay for insurance, except for the following.

  1. Long-term care insurance.

  2. Health care continuation coverage (such as coverage under COBRA).

  3. Health care coverage while receiving unemployment compensation under federal or state law.

  4. Medicare and other health care coverage if you were 65 or older (other than premiums for a Medicare supplemental policy, such as Medigap).

The premiums for long-term care insurance (item (1)) that you can treat as qualified medical expenses are subject to limits based on age and are adjusted annually. See Limit on long-term care premiums you can deduct in the Instructions for Schedule A (Form 1040).

Items (2) and (3) can be for your spouse or a dependent meeting the requirement for that type of coverage. For item (4), if you, the account beneficiary, aren’t 65 or older, Medicare premiums for coverage of your spouse or a dependent (who is 65 or older) aren’t generally qualified medical expenses.

Deemed distributions from HSAs.

The following situations result in deemed taxable distributions from your HSA.

  • You engaged in any transaction prohibited by section 4975 with respect to any of your HSAs at any time in 2025. Your account ceases to be an HSA as of January 1, 2025, and you must include the fair market value of all assets in the account as of January 1, 2025, on Form 8889.

  • You used any portion of any of your HSAs as security for a loan at any time in 2025. You must include the fair market value of the assets used as security for the loan as income on Form 1040, 1040-SR, or 1040-NR.

Examples of prohibited transactions include the direct or indirect:

  • Sale, exchange, or leasing of property between you and the HSA;

  • Lending of money between you and the HSA;

  • Furnishing goods, services, or facilities between you and the HSA; and

  • Transfer to or use by you or for your benefit of any assets of the HSA.

Any deemed distributions won’t be treated as used to pay qualified medical expenses. These distributions are included in your income and are subject to the additional 20% tax, discussed later.

Recordkeeping.

You must keep records sufficient to show that:

  • The distributions were exclusively to pay or reimburse qualified medical expenses,

  • The qualified medical expenses hadn’t been previously paid or reimbursed from another source, and

  • The medical expenses hadn’t been taken as an itemized deduction in any year.

Don’t send these records with your tax return. Keep them with your tax records.

Reporting Distributions on Your Return

How you report your distributions depends on whether or not you use the distribution for qualified medical expenses.

  • If you use a distribution from your HSA for qualified medical expenses, you don’t pay tax on the distribution but you have to report the distribution on Form 8889. However, the distribution of an excess contribution taken out after the due date, including extensions, of your return is subject to tax even if used for qualified medical expenses. Follow the instructions for the form and file it with your Form 1040, 1040-SR, or 1040-NR.

  • If you don’t use a distribution from your HSA for qualified medical expenses, you must pay tax on the distribution. Report the amount on Form 8889 and file it with your Form 1040, 1040-SR, or 1040-NR. You may have to pay an additional 20% tax on your taxable distribution.

Tip:

HSA administration and maintenance fees withdrawn by the trustee aren’t reported as distributions from the HSA.

Additional tax.

There is an additional 20% tax on the part of your distributions not used for qualified medical expenses. Figure the tax on Form 8889 and file it with your Form 1040, 1040-SR, or 1040-NR.

Exceptions.

There is no additional tax on distributions made after the date you are disabled, reach age 65, or die.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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