What this line means
The 20% additional tax on HSA distributions not used for qualified medical expenses. This penalty applies if you are under age 65, not disabled, and not a beneficiary receiving distributions after the account holder’s death. 1 The 20% is calculated on the taxable distribution amount from line 15 — on top of the regular income tax you already owe on that amount. This penalty flows to Schedule 2, line 17c.
Does this apply to you?
- You have a taxable amount on line 15 (meaning you used HSA funds for non-medical expenses)
- You are under age 65 at the end of 2025
- You are not disabled as defined by the IRS
- You are not a beneficiary who inherited the HSA after the account holder’s death
Easy to overlook
Disability exempts you from the 20% penalty If you are disabled (unable to engage in any substantial gainful activity due to a physical or mental condition expected to last at least 12 months or result in death), the 20% additional tax does not apply — even if you are under 65. You still owe regular income tax on non-qualified distributions, but the penalty is waived. Filers who qualify sometimes miss this exemption and overpay. 2 IRS Publication 969 — Additional tax on non-qualified distributions
The penalty disappears at age 65 On the day you turn 65, the 20% additional tax stops applying to non-medical HSA distributions. You still owe regular income tax, but there is no penalty. If you turned 65 at any point during 2025, distributions after your birthday are exempt from this line. Distributions before your 65th birthday in the same year are still subject to the 20% tax. 3 IRS Form 8889 instructions — Line 17b
Watch out for this
The 20% rate makes this one of the steepest penalties in the tax code for retirement-type accounts. Compare it to the 10% early withdrawal penalty on IRAs and 401(k)s. If you are in the 22% tax bracket and take a $5,000 non-qualified HSA distribution before age 65, you owe $1,100 in income tax plus $1,000 in penalty — losing $2,100 of the $5,000. Consider any other funding source before raiding your HSA for non-medical expenses.
Footnotes
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IRS Form 8889 Instructions, Line 17b. https://www.irs.gov/pub/irs-pdf/i8889.pdf ↩
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IRS Publication 969, Health Savings Accounts, Exceptions to the Additional 20% Tax. https://www.irs.gov/pub/irs-pdf/p969.pdf ↩
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IRS Form 8889 Instructions, Additional Tax. https://www.irs.gov/pub/irs-pdf/i8889.pdf ↩