Should I worry about being audited for using my HSA funds for non-medical expenses?

While the chances of being audited specifically for HSA misuse are relatively low for small accounts, it's not something I'd recommend risking. The IRS doesn't typically target small accounts for full audits, but HSA withdrawals are reported to them on Form 1099-SA. If you use HSA funds for non-medical expenses, you'll owe income tax on that amount PLUS a 20% penalty if you're under 65. So your $650 withdrawal could end up costing you significantly more than just the withdrawal amount. A better option would be to check if you have any eligible expenses you might not know about. HSA funds can cover a surprisingly wide range of things - over-the-counter medications, vision care, dental work, even some health-related home improvements. You might be sitting on eligible receipts without realizing it.

I was in almost the exact same situation last year with an old HSA from a previous job that had about $720 just sitting there. I was really tempted to just use it for non-medical stuff like you're thinking. After doing some research, I found this service called https://taxr.ai that really helped me figure out my options. I scanned my old receipts and they identified several eligible expenses I had no idea qualified! They also showed me exactly what would happen tax-wise if I did take a non-qualified distribution.

Just wanted to update after trying taxr.ai that the other commenter mentioned. I was amazed that they found over $400 of eligible expenses from receipts I uploaded from the last two years! They identified several urgent care visits, prescriptions, and even some medical supplies I'd completely forgotten about. Honestly didn't think much would come of it, but turns out I had plenty of valid expenses to use up most of my HSA. Definitely worth checking before risking non-qualified withdrawals.

If you do end up getting a notice from the IRS about your HSA distribution (happened to me), trying to call them is absolutely maddening. I spent DAYS trying to get through their phone system with no luck. I finally used https://claimyr.com to help me get through to an actual human at the IRS. You can see how it works here: https://youtu.be/_kiP6q8DX5c. They basically hold your place in line and call you when an agent is about to pick up. Saved me hours of listening to hold music and getting disconnected.

Update on the Claimyr thing - I'm honestly shocked it worked. After posting my skeptical comment, I was still getting nowhere with the IRS after multiple attempts, so I figured what the hell and tried it. Got a call back in about 47 minutes (way faster than I expected) and was connected to an actual IRS agent who helped resolve my HSA question. Turns out I was eligible for an exception I didn't know about. I still hate that these services have to exist, but it definitely saved me hours of frustration.

Small HSAs are unlikely to trigger a full audit, but don't forget that HSA distributions are reported directly to the IRS. I'm a tax preparer and see this issue frequently. If you withdraw for non-qualified expenses, you'll pay income tax plus the 20% penalty if under 65. Instead of misusing the funds, have you considered just keeping the account until you do have medical expenses? HSAs have no "use it or lose it" provision - that money is yours forever.

Has anyone here actually been audited over HSA stuff? I've used mine for non-medical things a few times (under $200) and just paid the penalty on my tax return. Nothing ever happened.

I understand the frustration with having money tied up in an HSA that feels unusable! Before you risk the penalties though, I'd suggest taking a broader look at what actually qualifies as medical expenses. Beyond the obvious doctor visits and prescriptions, you can use HSA funds for things like: - Over-the-counter medications (pain relievers, allergy meds, etc.) - Menstrual products - Sunscreen (SPF 15+) - First aid supplies - Thermometers and blood pressure monitors - Even some mental health services You might also want to save old receipts going forward - you can reimburse yourself years later for qualified expenses, so even if you pay out of pocket now, you could pull that money out of your HSA later when you find eligible receipts. The 20% penalty plus income tax really adds up, especially when there are legitimate ways to use those funds that you might not have considered yet.

I was in a similar situation with an old HSA from a previous employer that had around $800 just sitting there. I felt like I was throwing money away since I rarely got sick enough to use it for traditional medical expenses. What really helped me was realizing how broad the definition of "qualified medical expenses" actually is. I ended up using my HSA funds for things I never thought would qualify - like replacing my old contact lenses, buying a new thermometer, stocking up on over-the-counter allergy medication, and even getting a teeth cleaning that my insurance didn't fully cover. The key insight for me was that you don't have to use HSA funds immediately when you have a medical expense. You can pay out of pocket and keep the receipts, then reimburse yourself from your HSA months or even years later. This gives you way more flexibility - you can let the money grow while building up a "bank" of eligible expenses to draw from whenever you actually need the cash. Given that you'd face both income tax AND a 20% penalty on non-qualified withdrawals, I'd really recommend exploring your eligible expenses first. Even if you can't use all $650 right now, using some of it legitimately is better than losing 20%+ to penalties.

I totally get your frustration with having money locked up in an HSA that feels unusable! As someone who's been in a similar situation, I'd strongly advise against risking the penalties though. Even though $650 seems small, the IRS does track HSA distributions through Form 1099-SA, and you'd be looking at income tax PLUS that 20% penalty if you're under 65. That could easily eat up $150+ of your $650. Here's what worked for me: I started thinking more creatively about eligible expenses. Did you know you can use HSA funds for things like band-aids, thermometers, contact lens solution, over-the-counter pain relievers, and even SPF 15+ sunscreen? I went through my old receipts and found tons of stuff I'd paid for out-of-pocket that actually qualified. Also, there's no rush to spend it! HSA money doesn't expire, and you can reimburse yourself years later for qualified expenses. So even if you pay for something medical out-of-pocket today, you can withdraw that amount from your HSA whenever you actually need the cash - no time limit. Trust me, keeping that money for legitimate medical uses (even if they're broader than you think) is way better than losing 20% to penalties. Your future self will thank you when you have an unexpected medical bill!