What is the criterion for a distribution from an HSA to be tax-free?

For a distribution from a Health Savings Account (HSA) to be tax-free, it must be used for qualified medical expenses. Qualified medical expenses are defined by the IRS and include a wide range of healthcare costs, such as deductibles, copayments, dental care, vision care, and prescription medications, among others. These expenses must be incurred by the account holder, their spouse, or dependents, and they must be for costs that are not reimbursed.

Using funds for qualifying expenses ensures that taxpayers can benefit from tax advantages associated with HSAs, minimizing tax liabilities when they access their funds for healthcare. It’s essential that distributions are specifically for these qualified expenses to maintain their tax-exempt status. If funds are used for non-qualified expenses, they may be subject to taxation, and possibly penalties, depending on the account holder’s age and circumstances.