Understanding HSA Distributions

Distributions from HSA FAQ

Frequently Asked Questions About HSA Distributions

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.

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.

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.

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.

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.).

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.

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