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Used HSA Card on non-Medical item by mistake

This is a silly little problem but it caused some consternation for a friend of mine. Person used an HSA Debit card intended for pre-tax medical expenses only on a non-medical purchase by mistake. After realizing the error, the person went back to the store, returned the item and got a credit. The store actually screwed up the credit and did it wrong, so the person went back again and eventually got the store to credit the exact amount of the original charge. There ended up being two credits that were the exact amount of the one original debit. I don't know what the dollar amount was but I assume it's in the $25 to $50 range. Question is does my friend have to do anything else now to deal with this. She normally uses the card for medical expenses and never files any special paperwork or anything else. She gets a tax form at the end of the year and puts the info into her tax return, which is always straightforward and simple. She never has to talk to the HAS bank about anything or file any special forms other than what the IRS sends her for her taxes. Can she assume this is all handled by the return she did to the store?

Reply to
Fred
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According to Fred snipped-for-privacy@gmail.com:

I don't think so. At the end of the year Form 8889 says how much she took out of the HSA and how much was used for non-medical expenses. With the credits netting out the debit, the non-medical amount should still be zero.

Even if they screwed up again and reported a $25 non-medical withdrawal, the tax due would be pretty small. It's not illegal to use an HSA for non-medical stuff, you just lose the tax benefit, and if you're under 65 pay an extra 20% on the non-medical amount.

Reply to
John Levine

Not sure if this is totally legit, but I have heard that in the reverse situation - where you forget to use your HSA card for a medical expense and pay for it, say, with a credit card - you can request that an equivalent amount be paid to you from the card to compensate for not using the HSA card for the medical expense. I have also heard that if you accidentally use the card for a non-medical expense, as in the example in the original post, say $25, you can effectively make yourself whole by making sure that you incur another $25 in actual medical expenses that you pay for with another means, such as a regular credit card or cash. The idea seems to be that if the total amount you charge with the HSA card (even if it includes non-medical charges) is less than or equal to the total of the unreimbursed medical charges you incurred (even if they are from prior years, as long as its from after the time you opened the account) you're okay.

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Reply to
Rick

According to Rick snipped-for-privacy@nospam.com:

That is specifically allowed, and you can wait as long as you want to get reimbursed, like years. My HSA is at Lively, and their web site has a way to enter expenses and say you'll get reimbursed later. Since I don't need the money now and the HSA's investments are doing great, I pay my expenses with my regular credit card, enter them so I don't forget them, but don't get reimbursed.

All they ask at the end of the year is how much did you put in, how much did you take out, how much of that was for non-medical stuff (usually zero.) They don't care how you net it out.

Reply to
John Levine

John, Don't forget to save your original receipts till the year you get your HSA distribution to pay for them, as the IRS would want them if they were to look into your tax return for that year.

MK

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Reply to
Maria Ku

The Lively web site, which is remembering all of my unreimbursed medical expenses, strongly encourages me to upload scanned copies of the receipts, so I do. I hope the IRS would accept those in lieu of brittle old cash register receipts.

Reply to
John Levine

Yes, electronic images of receipts are acceptable.

Ira Smilovitz, EA Leonia, NJ

Reply to
ira smilovitz

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