Question

Patrick has a health savings account (HSA). In 2022, he took a $2,000 distribution from the account to make a down payment

on a car. What penalty will Patrick incur?
O $120
O $200
O $400
O $2,000

Answer 1

Patrick will face a 20% penalty of $400 for using his HSA funds for a non-qualified expense such as a car down payment. Option number C is correct.

Step-by-step explanation:

Patrick will incur a penalty for using his health savings account (HSA) funds for a non-qualified expense. HSA funds are intended for qualifying medical expenses, and using them for other purposes, such as making a down payment on a car, will result in taxation on the distribution as well as a potential penalty.

In 2022, the IRS imposes a 20% penalty for non-medical withdrawals for individuals under age 65. Therefore, on a $2,000 non-qualified distribution, Patrick would face a penalty of $400 ($2,000 x 20%).