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HSA/HDHP newbie; withdrawal issue

We have a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA). Our plan pays 100% of expenses after the deductible is met.

Here's the situation:

At our first visit with our provider, we wrote him a $70 check from our HSA, which is his contracted amount with the insurance company. Our thought was that surely our deductible, because it's so large, wouldn't be reached by the time he submitted the claim. He cashed the check.

However, we have recently found that he doesn't submit claims until he has a group of them from us. Also, we are incurring expenses at a rate that will exhaust the deductible very soon. Therefore, it is quite possible that the deductible will be reached by the time he submits the claim, making our original visit with him covered at 100% and eliminating the need for the check in the first place.

So, we would have made a withdrawal from the HSA that doesn't match up with an eligible out-of-pocket medical expense.

Assuming we get a reimbursement from either the doctor or the insurance company for the $70, can we "undo" the HSA transaction and put the money back in without raising any red flags? Or, what other options would we have?

Reply to
gindie
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This sounds like a homework assignment.

There is no procedure for redepositing HSA distributions other than the

60 day rollover period. So, if at the end of the year, your HSA distributions exceed your unreimbursed qualified medical expenses, the excess is taxable income and would be subject to the 10% (20% in 2011) additional tax unless you meet one of the exceptions.
Reply to
Alan

But say you paid the medical fees from your HSA and get a refund check

61 days later, is there no way to put this refund back into the HSA?
Reply to
removeps-groups

I can't find anything in the law (Sec. 223 and all published guidance) that allows a redeposit after 60 days. It appears to follow the same rules as an IRA.

Reply to
Alan

Surely, there will be some reason to pay the provider at least $70 more for qualified expenses later in the year. So pay that from non- HSA funds. What matters for tax purposes are the yearly totals for distributions and qualified expenses. Matching a particular check with a particular office visit isn't required.

Actually (IMO), one can pay the expenses from non-HSA funds as a matter of routine. Then, toward the end of the year, when it is clear how much HSA funds can properly be applied, one can write an HSA check reimburse oneself for the previously-undistributed balance.

Reference: IRS Pub 969 (2009) page 8:

"You can receive tax-free distributions from your HSA to pay _OR_BE_REIMBURSED_ for qualified medical expenses you incur after you establish the HSA." (emphasis added.)

Disclaimer: I?m not a tax professional; just an HSA holder like you. Somebody here with more expertise might disagree.

Reply to
zvkmpw

In advice posted on their website, the IRS seems to think it's okay; I don't have a direct statutory citation, however.

Q-37. An account beneficiary receives an HSA distribution as the result of a mistake of fact due to reasonable cause (e.g., the account beneficiary reasonably, but mistakenly, believed that an expense was a qualified medical expense and was reimbursed for that expense from the HSA). The account beneficiary then repays the mistaken distribution to the HSA. Is the mistaken distribution included in gross income under section 223(f)(2) and subject to the 10 percent additional tax under section 223(f)(4) or subject to the excise tax on excess contributions under section 4973(a)(5)?

A-37. If there is clear and convincing evidence that amounts were distributed from an HSA because of a mistake of fact due to reasonable cause, the account beneficiary may repay the mistaken distribution no later than April 15 following the first year the account beneficiary knew or should have known the distribution was a mistake. Under these circumstances, the distribution is not included in gross income under section 223(f)(2), or subject to the 10 percent additional tax under section 223(f)(4), and the repayment is not subject to the excise tax on excess contributions under section 4973(a)(5). But see Q&A 76 on the trustee?s or custodian?s obligation to accept a return of mistaken distributions.

Reply to
plus

I agree with this. I also note that reimbursment need not be in the same calendar year (as long as it's for an expense that occurred after the HSA was opened). For those having opened an account before April 16, 2005, remember that it was deemed open as of January 1, 2004.

Note that there may be some taxpayers who have an HSA but pay their medical expenses with non-HSA funds. If they (or you, as their tax practitioner) aren't keeping a running total of these unreimbursed but reimbursable medical expenses, you're not properly serving your client(s). Although upon death, HSA funds come out as income (to other than a spouse beneficiary), one still gets a reduction for prior unreimbursed medical expenses that are reimbursable. Reimbursement for expenses which yielded a tax benefit (i.e. above the AGI floor, and a tax after credits) for closed years do get recognized as income. I disagree with this rule from the RR/RP with regard to open years - the code makes it clear that the open year should be amended instead of recognizing income in the year of disbursement (or considering the expense as not qualifying for reimbursement).

A bit simplified, but accurate. See above.

Reply to
D. Stussy

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