When is an individual subject to the 20 percent premature distribution penalty tax?

Generally, if an HSA distribution is included in the HSA accountholder’s gross income because the funds were not used to pay for qualified medical expenses, the amount of that withdrawal will also be subject to an additional 20 percent penalty tax. This 20 percent penalty tax does not apply to distributions made after the HSA accountholder’s death, disability or attainment of age 65.