Nonqualified medical expense distributions from a Health Savings Account (HSA) have a tax penalty of?

Nonqualified medical expense distributions from a Health Savings Account (HSA) incur a tax penalty of 20%. If an HSA account holder withdraws funds for purposes other than qualified medical expenses, not only do they have to pay income tax on the withdrawn amount, but they also face this additional penalty. This serves as a deterrent to use HSA funds for nonqualified expenses, promoting the primary purpose of HSAs as a savings vehicle for medical expenses.

Qualified medical expenses can be a critical aspect of health savings strategies, and understanding the penalty structure emphasizes the importance of using HSA funds appropriately. It is essential for individuals to manage their HSA contributions and distributions carefully to avoid unnecessary penalties.