Fact Checked by: David Chen, CFA | Updated October 2023
Withdrawing funds from your Health Savings Account (HSA) for non-qualified expenses can be costly. Use this calculator to estimate the total financial impact, including federal income taxes and the mandatory 20% IRS penalty for early withdrawals.
HSA Withdrawal Penalty Calculator
HSA Withdrawal Penalty Calculator Formula
Total Cost = (Withdrawal Amount × Income Tax Rate) + (Withdrawal Amount × 20% Penalty*)
*Penalty only applies if the user is under age 65 and funds are used for non-qualified expenses.
Formula Sources: IRS Publication 969, HealthCare.gov
Variables:
- Withdrawal Amount: The gross amount you intend to take out of your HSA.
- Combined Income Tax Rate: Your expected federal and state marginal tax bracket.
- Age: Used to determine if the 20% additional tax applies (waived at age 65+).
Related Calculators
What is an HSA Withdrawal Penalty?
An HSA withdrawal penalty is a fiscal safeguard implemented by the IRS to ensure HSA funds are used for their intended purpose: qualified medical expenses. If you use the funds for non-medical reasons before reaching age 65, the amount withdrawn is treated as taxable income.
In addition to standard income tax, the IRS imposes a 20% penalty. Once you turn 65, the 20% penalty is eliminated, though you still pay income tax on non-medical withdrawals, effectively turning the HSA into a traditional IRA-like account.
How to Calculate HSA Penalty (Example)
- Identify Withdrawal: Suppose you withdraw $1,000 for a vacation.
- Apply Tax: If your tax rate is 24%, you owe $240 in income tax.
- Apply Penalty: Since you are under 65, add a 20% penalty ($200).
- Total Cost: $240 + $200 = $440. You only keep $560 of your $1,000 withdrawal.
Frequently Asked Questions (FAQ)
Does the 20% penalty ever go away? Yes, once you reach age 65 or become disabled, the 20% penalty no longer applies for non-medical withdrawals.
Are all medical expenses penalty-free? Only “Qualified Medical Expenses” as defined by IRS Code Section 213(d) are tax-free and penalty-free.
Can I return mistakenly withdrawn funds? Yes, you can typically return mistaken distributions to your HSA provider by April 15 of the following year to avoid penalties.
Is there a state penalty? Most states follow federal rules, but some states may have additional tax implications for HSA withdrawals.