If you withdraw money from your HSA (Health Savings Account), you will receive tax Form 1099-SA. When you enter that on your tax return, you will be asked if you used the money to pay for qualified medical expenses. If you did, there is no tax or penalty. If you answer NO and you did not use the money for qualified medical expenses, you will pay ordinary income tax + a 20% penalty when you file your tax return. You don't pay the penalty until you prepare your tax return.
Why is my HSA distribution taxable?
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