What Happens If I Take Cash Back on HSA Card?

Many people wonder what happens if they take cash back on their HSA (Health Savings Account) card. It's important to understand the implications of such actions on your HSA account.

When you take cash back on your HSA card, it is considered a distribution from your HSA account. Here's what happens:

• The cash back amount is subject to taxes: Any cash withdrawn from your HSA is considered a taxable distribution by the IRS.
• Penalties may apply: If you're under 65 and use the cash for non-qualified medical expenses, you may have to pay an additional 20% penalty on the amount withdrawn.
• Impact on your contribution limits: Taking cash back may affect your ability to contribute more to your HSA for the year, as there are annual contribution limits set by the IRS.
• Loss of tax benefits: HSA funds used for qualified medical expenses are tax-free. Taking cash back reduces the amount available for tax-free healthcare spending.

It's crucial to use your HSA funds wisely and only for qualified medical expenses to maximize the tax benefits and avoid penalties.

Taking cash back on your HSA card is a tempting option, but it's crucial to think about its implications. When you withdraw cash, you enter a realm of tricky rules and potential financial consequences.