Intuit Academy Tax Practice Exam

Question: 1 / 400

How do HSA withdrawals for qualified medical expenses affect your taxes?

They are subject to capital gains tax

They are tax-free

HSA withdrawals for qualified medical expenses are tax-free, which means you can use the funds in your Health Savings Account without incurring any tax liability, provided that the expenses are deemed qualified under IRS guidelines. This unique tax treatment is one of the major benefits of HSAs, allowing you to pay for eligible medical costs with pre-tax dollars, thereby reducing your taxable income in the long run.

Qualified expenses include a wide range of medical costs, such as deductibles, copayments, and other out-of-pocket health expenses. This tax-free withdrawal feature provides significant savings for account holders and incentivizes individuals to save for healthcare costs using their HSA. The absence of capital gains tax, increased taxable income, or penalties related to these withdrawals reinforces the favorable tax treatment of HSAs when used for qualified medical expenses.

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They increase taxable income

They incur penalties

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