Distributions from HSA FAQ

Health Savings Accounts (HSAs) provide flexibility when it comes to covering medical expenses. Here are some frequently asked questions to help you understand how HSA distributions work.

When can you receive distributions from your HSA?

You are permitted to receive distributions from your HSA at any time. At Community West Bank, you may write a check, or use your debit card, or by transferring funds from your Community West Bank HSA account into your checking account on the Internet.

How are distributions from an HSA taxed?

Distributions from an HSA used exclusively to pay for the qualified medical expenses of you or your spouse or eligible dependents are generally excludable from gross income.

The amount of any distribution not used exclusively for such qualified medical expenses is includable in your gross income and may be subject to an additional 20% premature distribution penalty tax on the amount includable. (This 20% penalty tax does not apply to distributions made after your death, disability, or attainment of age 65.) In addition, distributions made for expenses that are reimbursed by another health plan are includable in your gross income, whether or not the other health plan is a high-deductible health plan.

Must Community West Bank determine whether HSA distributions are for qualified medical expenses?

Community West Bank is not required to determine whether distributions from your HSA are used for qualified medical expenses. It is your sole responsibility to make that determination. You are also solely responsible for maintaining adequate records for tax purposes and for paying any taxes and penalties which may result from any distribution. Please discuss any questions you may have with your tax or legal advisor.

May a mistaken distribution be repaid without adverse tax consequences or penalty?

The amount of a mistaken distribution is not included in your gross income nor is it subject to the 20% penalty or excise tax on excess contributions if: 1) you receive the distribution as a result of a mistake of fact due to reasonable cause, and 2) you repay to your HSA the amount of the mistaken distribution no later than April 15 following the first year you knew or should have known of the mistake. (Please note that your HSA trustee or custodian is not obligated to allow you to repay mistaken distributions to your HSA.).

May distributions from an HSA be deferred to later taxable years?

Distributions from your HSA to pay or reimburse qualified medical expenses incurred in the current year may be deferred to later taxable years, as long as those expenses were incurred after your HSA was established. Distributions from your HSA in the current year can be used to pay or reimburse qualified medical expenses incurred in prior years, as long as those expenses were incurred after your HSA was established. You must keep proper records in order for these distributions to be excludable from your gross income.

What medical expenses are eligible for tax-free distributions from your HSA?

At present, qualified medical expenses include the following, but only to the extent these expenses are not covered by insurance or otherwise:

• Abdominal supports
• Abortion
• Acupuncture
• Air conditioner (when necessary for relief from difficulty in breathing)
• Alcoholism treatment
• Ambulance
• Anesthetist
• Arch supports
• Artificial limbs
• Autoette (when used for relief of sickness/disability)
• Birth control pills (by prescription)
• Blood tests
• Blood transfusions
• Braces
• Cardiographs
• Chiropractor
• Christian Science Practitioner
• Contact Lenses
• Contraceptive devices (by prescription)
• Convalescent home (for medical treatment only)
• Crutches
• Dental treatment
• Dental x-rays
• Dentures
• Dermatologist
• Diagnostic fees
• Diathermy
• Drug addiction therapy
• Drugs (by prescription)
• Elastic hosiery (by prescription)
• Eyeglasses (by prescription)
• Fees paid to health institute prescribed by a doctor
• FICA and FUTA taxes paid for medical services
• Fluoridation unit
• Guide dog
• Gum treatment
• Gynecologist
• Healing services
• Hearing aids and batteries
• Hospital bills
• Hydrotherapy
• Insulin treatment
• Lab tests
• Lead paint removal
• Legal fees
• Lodging (away from home for outpatient care)
• Long term care insurance premiums
• Medicare Parts A & B after age 65
• Metabolism tests
• Neurologist
• Nursing (including board and meals)
• Obstetrician
• Operating room costs
• Ophthalmologist
• Optician
• Optometrist
• Oral surgery
• Organ transplant (including donor’s expenses)
• Orthopedic shoes
• Orthopedist
• Osteopath
• Oxygen and oxygen equipment
• Pediatrician
• Physician
• Physiotherapist
• Podiatrist
• Postnatal treatments
• Practical nurse for medical services
• Prenatal care
• Prescription medicines
• Psychiatrist
• Psychoanalyst
• Psychologist
• Psychotherapy
• Radium therapy
• Registered nurse
• Special school costs for the handicapped
• Spinal fluid test
• Splints
• Sterilization
• Surgeon
• Telephone or TV equipment to assist the hard-of-hearing
• Therapy equipment
• Transportation expenses (relative to health care)
• Ultra-violet ray treatment
• Vaccines
• Vasectomy
• Vitamins (by prescription)
• Wheelchair
• X-rays
• Certain permissible premiums for dental insurance, accident, cancer and COBRA

For more information, see IRS Publication 502: Medical and Dental Expenses (Section 213(d)).