HSA Qualified Expenses

Hi, Robert.

If you went to your doctor on December 15, 2011, but didn't get the bill and pay him until January 15, 2012, then you would deduct that medical expense on your 2012 return (assuming you file your tax return on the Cash Method, as almost all of us do).

If you borrowed cash from your bank and paid that doctor bill on December

20, 2011, you would deduct that expense on your 2011 return. By the end of 2011, you might still owe the bank, but you had already paid your doctor. When you pay off your bank loan - in 2012 or 2013 or whenever - you get no deduction for the medical expense.

If you paid your doctor on December 15, 2011, by using your MasterCard, you would deduct the expense in 2011. Again, you had paid your doctor before year-end. Whether you pay MasterCard in a lump sum or in installments, you get no medical deduction for those payments.

IRS Publication 502, Medical and Dental Expenses, includes this sentence: "If you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged." So far as I know, there is no option to deduct such payments in the year you pay off the credit card.

We've discussed this question at length several times in this newsgroup, but I don't have the archives at my fingertips.

An expense is "incurred" at the time the service (or merchandise) is received, so you incurred the medical expenses in 2011. But I have no experience with Health Savings Accounts, so I'll let others comment on that aspect.

Remember that I've been retired for over 20 years now, and tax rules change often, so be sure to check with your own CPA for a current interpretation of today's rules.

RC

-- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2012 Deluxe R 5 and Windows Live Mail in Win7 x64)

There's some smart people here - I wonder if someone could point me in the right direction.

Late last year (2011), I had a couple of medical expenses. These expenses weren't billed to me until a few days ago as the insurance company had to evaluate which part was mine and which they would cover.

Starting Jaunary 1, 2012, my employer offered and I signed up for their HSA plan. The IRS states (Pub 969) that expenses incurred prior to the start of the plan are not qualified. However, they do not defined what "incurred" means. Is it the date of the office visit or the date I am billed or the date the bill is paid?

Not a huge amount of money, but I'd like to use my HSA for this if possible. IIRC a similar situation comes up with credit cards - the IRS allows you to use the charge date or the date you pay the card off, but wants you to be consistent. Not sure how that logic would apply in this case.

Thank you. I found that reference you mentioned for the medical deduction which confirms what you shared - that the expense goes with the year you paid it, not when the office visit occurred. HSAs appear to have slightly different rules as I found several references that stated they aligned with when you caused the expense to occur, not when you paid it.

For $120 it's not worth the risk of audit and penalty, so absent anything published by th IRS that addresses this, I probably won't claim it.

Actually, I think HSA accounts make that even easier - many (most?) expire at the end of the year and, so it makes it more likely that the payments made with an HSA will be made the same year the service was rendered. I'm not sure if it's customary that the renewal day is always January 1st though - it had been my experience but I'm not certain it is always the case.

I don't know if you actually can deduct it, anyhow. TurboTax says:"With this itemized deduction, you can deduct medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI)." Unless you had other expenses that would bring the total medical to above

7.5% of your AGI, it sounds like it has all been irrelevant - can't claim it anyhow.

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And in some companies, they do have a so-called 'grace period' that you can claim expenses for a previous year up to a certain point in the following year (like March or April).