Question

Mary has a HSA. Distributions that she has made for anything other than qualified medical expenses are considered taxable and subject to a penalty of

Answer 1

Mary's HSA distributions for non-qualified medical expenses are taxable and subject to a 20% penalty, acting as a deterrent for misuse of HSA funds.

Step-by-step explanation:

Mary has a Health Savings Account (HSA), which allows for tax-free distributions if they are used for qualified medical expenses. If she takes distributions for any other purpose, those distributions are considered taxable income and are subject to an additional 20% penalty. This penalty is in place to discourage the use of HSA funds for non-medical expenses and ensure that these accounts are used as intended for healthcare costs.