What Happens If You Spend Your HSA on Something Ineligible? The 20% Penalty Explained

Short answer: if you use HSA money for something that isn't a qualified medical expense, that amount is generally added to your taxable income, and if you're under 65 (and not disabled) the IRS typically adds a 20% additional tax on top.

Most of us have swiped an HSA card without a second thought. Then a doubt creeps in: was that actually covered? Take a breath. It's a common worry, it's usually fixable, and understanding the rules takes about five minutes.

What counts as an ineligible HSA purchase?

An ineligible purchase is anything that isn't a qualified medical expense under IRS rules. Think of general-health items with no medical purpose, like a gym membership, vitamins taken only for general wellness, or a gift card. The IRS lists what qualifies in Publication 969. Cost isn't the test; the purpose of the item is.

Your HSA card working at checkout doesn't prove an item is eligible. A card can approve a purchase at a merchant that sells both eligible and ineligible things. You are the one responsible for whether the expense qualifies.

How much is the penalty for using an HSA on a non-medical expense?

If you're under 65, the amount is generally included in your gross income and also hit with an additional 20% tax. So a $200 ineligible purchase could mean $200 added to your taxable income, plus a $40 additional tax. The exact income tax depends on your bracket. You report this on Form 8889 when you file.

Does the penalty go away after age 65?

For the most part, yes. Once you turn 65, the 20% additional tax generally no longer applies, though the amount is still taxed as ordinary income. The 20% tax is also generally waived if the account holder becomes disabled or dies. If Medicare is in your future, our guide to what changes with an HSA after 65 walks through the details.

Can you fix a mistaken HSA withdrawal?

Sometimes. The IRS has allowed that a distribution made by mistake may be returned to the account, but there are conditions, such as the mistake being reasonable and the timing of the repayment. Because rules and deadlines matter here, call your HSA administrator first and ask what they allow, then check with a tax professional. We can't tell you which situation you're in, and that's okay. They can.

If the purchase was eligible all along and you simply paid another way, you have a different, happier option. You may be able to reimburse yourself later, as long as you kept the receipt. We cover that in the HSA receipt rule explained.

How do you know if red light therapy is HSA eligible?

Eligibility depends on the item and how it's used, so keep your paperwork and check with your plan administrator. A letter of medical necessity can help in some cases, and we explain when in our letter of medical necessity guide. For the full walkthrough, see how to pay for red light therapy with your FSA or HSA card.

Not sure which device fits your situation? Try the device finder quiz.

How can you avoid an HSA mistake in the first place?

A few habits go a long way.

• Check the IRS list or your plan's eligible-expense list before buying anything borderline.
• Keep every receipt and any provider note, ideally in one folder.
• Ask your plan administrator when something is unclear. They answer this question all day.
• If you're unsure, pay with a regular card first. You can reimburse yourself later once you've confirmed eligibility.

Frequently asked questions

Is the 20% penalty applied to the whole HSA balance?

No. It applies only to the amount you withdrew for a non-qualified purpose, not your full balance.

Does an FSA work the same way?

Not exactly. An FSA is employer-run and usually requires substantiation. If a charge can't be verified, the administrator may ask you to repay it or offset it, rather than the IRS penalty applying in the same way. Your plan documents spell out the process.

Will the IRS know I made an ineligible purchase?

Your HSA custodian reports total distributions, and you're responsible for reporting which ones were qualified on Form 8889. That's why receipts matter.

Can I put the money back if I realize I made a mistake?

Possibly, depending on the circumstances and timing. Ask your HSA administrator and a tax professional before assuming either way.

Are over-the-counter items eligible?

Many are, but not all. Check the IRS guidance and your plan's list for the specific item.

Money questions can feel heavier than they are. A little checking up front and a tidy folder of receipts will cover most of it.

This article is for general education and is not medical advice. Red light therapy devices are intended for general wellness and are not intended to diagnose, treat, cure, or prevent any disease. Always check with a qualified healthcare provider before starting a new therapy. This article is also not tax or legal advice; consult a qualified tax professional about your situation.