Health Savings Account Rules: Eligibility, Withdrawals and the 20% Penalty
Quick answer
To fund an HSA in 2026 you need an HSA-eligible high deductible health plan (deductible of at least $1,700 self-only or $3,400 family), no other disqualifying coverage, no Medicare enrollment, and nobody claiming you as a dependent. Withdrawals are tax free for qualified medical expenses; anything else is taxed as income plus 20% before age 65.
HSA rules at a glance, 2026
| Rule | What the IRS says |
|---|---|
| Eligibility | Covered by an HDHP on the first day of the month, no other non-permitted health coverage, not enrolled in Medicare, not claimable as a dependent on someone else's return (Pub 969) |
| 2026 HDHP definition | Annual deductible of at least $1,700 self-only or $3,400 family; out-of-pocket maximum (excluding premiums) no more than $8,500 self-only or $17,000 family (Rev. Proc. 2025-19) |
| Qualified expenses | Medical care under Code section 213(d) for you, your spouse and your dependents: doctors, dentists, prescriptions, vision, hearing, mental health, equipment and more (Pub 502) |
| Insurance premiums | Generally NOT qualified, except long-term care insurance, COBRA continuation cover, cover while receiving unemployment compensation, and Medicare premiums at 65+ (but not Medigap) |
| Withdrawals before 65, non-qualified | Included in income plus an additional 20% tax (Pub 969) |
| Withdrawals at 65+, disability or death | No 20% additional tax; non-qualified amounts are still taxed as ordinary income |
| Unused funds | Carry over indefinitely; no use-it-or-lose-it. An FSA, by contrast, caps 2025 carryover at $660 of a $3,300 limit |
| Record-keeping | Keep proof each withdrawal paid a qualified expense that was not reimbursed elsewhere and not claimed as an itemized deduction; report every distribution on Form 8889 |
| Prior-year expenses | A distribution can reimburse a qualified expense from an earlier year if the expense arose after the HSA was established and you keep written documentation (Notice 2004-50) |
Health savings account rules split into three questions: can you fund one, what can you spend it on, and what happens when you break the spending rule. The table above answers all three from the primary sources, IRS Publication 969 and Revenue Procedure 2025-19. The gatekeeper is your insurance. Only an HSA-eligible high deductible health plan opens the door, and for 2026 that means a deductible of at least $1,700 (self-only) or $3,400 (family) with out-of-pocket costs capped at $8,500 or $17,000. Enroll in Medicare, pick up disqualifying second coverage, or become someone's dependent, and new contributions stop, though the existing balance stays yours to spend.
The HSA withdrawal rules are where the account earns its keep. Qualified medical expenses, meaning care under Code section 213(d) for you, your spouse and your dependents, come out tax free at any age: think prescriptions, dental work, glasses, hearing aids, therapy, medical equipment. Publication 502 carries the full working list, and it is a category test, not a shopping list, so prescribed treatment for a diagnosed condition generally qualifies. Break the rule before 65 and the withdrawal is taxed as income plus a 20% additional tax. From 65, the 20% vanishes and non-medical withdrawals are simply taxed like a traditional IRA, the stealth feature covered in our HSA account benefits guide. Either way, every distribution goes on Form 8889, so keep the receipts: the IRS expects proof each withdrawal was qualified, unreimbursed, and never itemized.
And unlike an FSA, nothing expires. Unused money carries over indefinitely, which is what makes the invest-and-reimburse-later strategy work. How much you can put in each year, including the $1,000 catch-up from 55 and the last-month rule for partial-year eligibility, is in our maximum HSA contribution for 2026 guide. To see where the HSA sits in the wider stack, compare the 2026 401(k) contribution limits, and find the rest of our US coverage at /us/articles.
Frequently asked questions
Can I use my HSA to pay for my girlfriend?
Generally no. HSA withdrawal rules limit tax-free spending to qualified medical expenses for you, your spouse and your tax dependents. A girlfriend or boyfriend only counts in the rare case they qualify as your dependent under IRS rules. Otherwise the withdrawal is taxable plus the 20% additional tax before 65.
Can I buy toilet paper with my HSA?
No. General household and personal hygiene items are not medical care under Code section 213(d), so toilet paper, toothpaste and cosmetics are not qualified expenses. Spend HSA money on them and the amount becomes taxable income, with a 20% additional tax on top if you are under 65.
What is a downside of an HSA?
The entry requirement. You must hold a high deductible health plan, which for 2026 means paying at least the first $1,700 (self-only) or $3,400 (family) of most care yourself. Add the 20% additional tax on non-qualified withdrawals before 65 and the receipts the IRS expects you to keep.
What happens to your health savings account if you do not use it?
It carries over, in full, forever. There is no use-it-or-lose-it rule for HSAs: unused balances roll into the next year, keep earning tax free, and the account stays with you if you change employers or leave the workforce. Only FSAs forfeit unspent money at year end.
What is the HSA loophole?
The delayed-reimbursement move. IRS Notice 2004-50 lets you take a distribution years after a qualified expense was incurred, provided the expense came after the HSA was opened and you kept the receipt. Pay cash today, invest the balance, then reimburse yourself tax free after decades of growth.
What is surprisingly HSA-eligible?
Publication 502 includes some items people miss: breast pumps and lactation supplies, personal protective equipment, guide dog costs including food and vet care, lead-based paint removal for a child with lead poisoning, and weight-loss programs prescribed to treat a specific diagnosed disease.
Sources
- IRS Publication 969 - Health Savings Accounts and Other Tax-Favored Health Plans
- IRS Publication 502 - Medical and Dental Expenses
- IRS Rev. Proc. 2025-19 - 2026 HSA and HDHP inflation adjusted amounts
- IRS Notice 2004-50 (IRB 2004-33) - HSA questions and answers
- IRS Instructions for Form 8889 - Health Savings Accounts
General information, not financial advice. Tax rules and figures can change; check the current position on irs.gov or ssa.gov before acting.