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How are disbursements from an HSA taxed?

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A. HSA disbursements used to pay for qualified medical expenses of the account holder (or spouse/dependents) are not taxed. Any amount of the disbursements not used to pay for qualified medical expenses is subject to ordinary tax plus an additional 10% penalty. This penalty does not apply in the case of distributions made after the account holder's death, disability, or attaining age 65. more
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