HSA withdrawal logistics

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WarAdmiral
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HSA withdrawal logistics

Post by WarAdmiral »

Hi,

Has anyone withdrawn HSA funds with old receipts as proof of medical expenses ?

How has your experience been ? Did you use your HSA card to withdraw cash balance or wire money to your bank account ?
Did you have to deal with plan administrator or receive any tax forms ? How did you deal with taxes ?
02nz
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Re: HSA withdrawal logistics

Post by 02nz »

It makes no difference whether the expense was incurred today or 10 years ago, as long as it was after the HSA was opened (or after your first HSA was opened, I believe). The plan administrator may provide a way for you to track receipts, but in terms of documenting that the expense was eligible for reimbursement from the HSA, you're ultimately accountable to the IRS.
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RickBoglehead
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Re: HSA withdrawal logistics

Post by RickBoglehead »

You can't use an HSA to pay for any expenses that happened before the account was opened.

As far as withdrawals, simply withdraw the money.

You'll get a form 1099-SA for the tax year from the HSA account provider sometime early in the following year, and on your tax return show that the distributions were used for medical expenses. You'll complete form 8889, and line 15 will be for the medical expenses. https://www.irs.gov/pub/irs-pdf/f8889.pdf
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WarAdmiral
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Re: HSA withdrawal logistics

Post by WarAdmiral »

02nz wrote: Fri May 07, 2021 8:48 am It makes no difference whether the expense was incurred today or 10 years ago, as long as it was after the HSA was opened (or after your first HSA was opened, I believe). The plan administrator may provide a way for you to track receipts, but in terms of documenting that the expense was eligible for reimbursement from the HSA, you're ultimately accountable to the IRS.
Wouldn't the plan administrator issue some kind of document indicating a withdrawal ? and also report this document to the IRS ?
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WarAdmiral
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Re: HSA withdrawal logistics

Post by WarAdmiral »

RickBoglehead wrote: Fri May 07, 2021 8:49 am You can't use an HSA to pay for any expenses that happened before the account was opened.

As far as withdrawals, simply withdraw the money.

You'll get a form 1099-SA for the tax year from the HSA account provider sometime early in the following year, and on your tax return show that the distributions were used for medical expenses. You'll complete form 8889, and line 15 will be for the medical expenses. https://www.irs.gov/pub/irs-pdf/f8889.pdf
Wonderful. Thank you. That answers my question.
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dodecahedron
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Re: HSA withdrawal logistics

Post by dodecahedron »

HSA plan administrators are not responsible for checking receipts. You ask for money from your HSA, you get it, no questions asked.

They report the distributions to you on a 1099-SA.

You file Form 8889 as part of your income tax return for the year in which you received the distribution, reporting the 1099-SA distributions you took.

You self-report the amount of those distributions that were used for "qualified medical expenses." Any excess distributions not used for qualified expenses is of course taxable income (and subject to penalties if you are under 65.)

You hang on to all your receipts and EOBs, etc. and send them to the IRS *only* if and when the IRS requests them as part of an audit.
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WarAdmiral
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Re: HSA withdrawal logistics

Post by WarAdmiral »

dodecahedron wrote: Fri May 07, 2021 8:52 am HSA plan administrators are not responsible for checking receipts. You ask for money from your HSA, you get it, no questions asked.

They report the distributions to you on a 1099-SA.

You file Form 8889 as part of your income tax return for the year in which you received the distribution, reporting the 1099-SA distributions you took.

You self-report the amount of those distributions that were used for "qualified medical expenses." Any excess distributions not used for qualified expenses is of course taxable income (and subject to penalties if you are under 65.)

You hang on to all your receipts and EOBs, etc. and send them to the IRS *only* if and when the IRS requests them as part of an audit.
Thanks!
howard71
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Re: HSA withdrawal logistics

Post by howard71 »

This is my first year using an HSA. It was offered by my wife's employer and sounded like a great deal to me. We are currently maxing it out from paycheck contributions and will probably continue to do so until my wife retires (I'm already).

What I'm wondering is if we use the Credit Card we were given to pay approved expenses, do we have to save the receipts for the IRS? HealthEquity is the plan administrator and it conveniently allows you to scan and upload the receipts but I'm wondering if this is something I really need to do.
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dodecahedron
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Re: HSA withdrawal logistics

Post by dodecahedron »

howard71 wrote: Fri May 07, 2021 9:08 am What I'm wondering is if we use the Credit Card we were given to pay approved expenses, do we have to save the receipts for the IRS? HealthEquity is the plan administrator and it conveniently allows you to scan and upload the receipts but I'm wondering if this is something I really need to do.
Yes, you do need to save the receipts. Your HSA is under no obligation to monitor the stuff you upload to determine whether they were "qualified" or not. The HSA provider will report the total of whatever you distribute on a 1099-SA and their 1099-SA reporting will make no distinction between distributions where you used the card or just requested cash reimbursement.

All distributions that you subsequently claim on your Form 8889 were "qualified medical expenses" are subject to later audit by the IRS. Retain the receipts and EOBs until at least three years AFTER the return due date (or filing date, if later) in which you claimed qualified medical expenses on Form 8889.

Think about this way: your HSA provider has NO way to know whether many apparently legitimate expenses were qualified. You paid a medical expense (e.g., doctor's bill) for your dependent child or relative with your card? How would your HSA know whether the person is actually your tax dependent?

YOU yourself may not even have known whether the kid was your dependent at the time you paid the expense with your card. (Maybe the kid you thought was your dependent at the time you paid the bill subsequently dropped out of college and got a higher paying job or joined the military or whatever and wound up providing more than half their support that year or maybe they got married later in the tax year and filed a joint return.)
Last edited by dodecahedron on Fri May 07, 2021 9:48 am, edited 1 time in total.
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RickBoglehead
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Re: HSA withdrawal logistics

Post by RickBoglehead »

howard71 wrote: Fri May 07, 2021 9:08 am This is my first year using an HSA. It was offered by my wife's employer and sounded like a great deal to me. We are currently maxing it out from paycheck contributions and will probably continue to do so until my wife retires (I'm already).

What I'm wondering is if we use the Credit Card we were given to pay approved expenses, do we have to save the receipts for the IRS? HealthEquity is the plan administrator and it conveniently allows you to scan and upload the receipts but I'm wondering if this is something I really need to do.
Two reasons NOT to do what you're talking about (use the plan's credit card to pay for approved expenses):

1) Use your best rewards / cashback card, and then pay yourself back with withdrawals from the account. Why are you giving up 2% cashback (or whatever your best rewards card gives you?

2) Consider NOT using your HSA at all, and instead saving every receipt and determination of benefits for many years down the road. Let the HSA build and build and build tax free.

I made the mistake of using HSA money at first, including those shiny credit cards, before I realized the error of my ways. Fortunately (?) I was only in an HSA for 18 months before it was no longer offered.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
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dodecahedron
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Re: HSA withdrawal logistics

Post by dodecahedron »

I would also note that saving receipts by uploading them to your HSA convenient website may not be the greatest idea. You may have many HSA providers over the course of your life (due to switching employers or just better deals available or simply HSA providers deciding to leave the business or mergers/acquisitions.)

Whether you can easily retrieve your receipts from an older provider years or decades down the road is doubtful.

I would recommend creating your own consolidated master document storage strategy (for all type of long term record storage purposes, not just HSA receipts) that you own and control (e.g., dropbox, GoogleDrive, periodic hard-drive backups).
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Re: HSA withdrawal logistics

Post by earflop »

RickBoglehead wrote: Fri May 07, 2021 9:47 am Two reasons NOT to do what you're talking about (use the plan's credit card to pay for approved expenses):

1) Use your best rewards / cashback card, and then pay yourself back with withdrawals from the account. Why are you giving up 2% cashback (or whatever your best rewards card gives you?

2) Consider NOT using your HSA at all, and instead saving every receipt and determination of benefits for many years down the road. Let the HSA build and build and build tax free.

I made the mistake of using HSA money at first, including those shiny credit cards, before I realized the error of my ways. Fortunately (?) I was only in an HSA for 18 months before it was no longer offered.
If I may add a third reason:

I spend a lot of time on personal finance boards and every so often someone posts that they paid for a medical procedure with their HSA, then a month or two later they get a reimbursement check from their insurance. Now they have a messy situation of having to submit a request for a mistaken distribution to their HSA provider and put the money back since you can only use HSA funds for unreimbursed healthcare expenses.

Even if you intend to use HSA funds for current medical expenses, you should still pay with a different payment method and wait 2-3 months to make sure your insurance isn't going to cover it.
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Re: HSA withdrawal logistics

Post by willthrill81 »

02nz wrote: Fri May 07, 2021 8:48 am It makes no difference whether the expense was incurred today or 10 years ago, as long as it was after the HSA was opened (or after your first HSA was opened, I believe). The plan administrator may provide a way for you to track receipts, but in terms of documenting that the expense was eligible for reimbursement from the HSA, you're ultimately accountable to the IRS.
Correct. Your administrator shouldn't be asking for receipts. But the IRS might, especially if you get audited.
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howard71
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Re: HSA withdrawal logistics

Post by howard71 »

RickBoglehead wrote: Fri May 07, 2021 9:47 am
howard71 wrote: Fri May 07, 2021 9:08 am This is my first year using an HSA. It was offered by my wife's employer and sounded like a great deal to me. We are currently maxing it out from paycheck contributions and will probably continue to do so until my wife retires (I'm already).

What I'm wondering is if we use the Credit Card we were given to pay approved expenses, do we have to save the receipts for the IRS? HealthEquity is the plan administrator and it conveniently allows you to scan and upload the receipts but I'm wondering if this is something I really need to do.
Two reasons NOT to do what you're talking about (use the plan's credit card to pay for approved expenses):

1) Use your best rewards / cashback card, and then pay yourself back with withdrawals from the account. Why are you giving up 2% cashback (or whatever your best rewards card gives you?

2) Consider NOT using your HSA at all, and instead saving every receipt and determination of benefits for many years down the road. Let the HSA build and build and build tax free.

I made the mistake of using HSA money at first, including those shiny credit cards, before I realized the error of my ways. Fortunately (?) I was only in an HSA for 18 months before it was no longer offered.
Thanks. I was actually thinking the same thing. Think of it kind of like a medical expense emergency fund and let it grow otherwise.
howard71
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Re: HSA withdrawal logistics

Post by howard71 »

dodecahedron wrote: Fri May 07, 2021 9:37 am
howard71 wrote: Fri May 07, 2021 9:08 am What I'm wondering is if we use the Credit Card we were given to pay approved expenses, do we have to save the receipts for the IRS? HealthEquity is the plan administrator and it conveniently allows you to scan and upload the receipts but I'm wondering if this is something I really need to do.
Yes, you do need to save the receipts. Your HSA is under no obligation to monitor the stuff you upload to determine whether they were "qualified" or not. The HSA provider will report the total of whatever you distribute on a 1099-SA and their 1099-SA reporting will make no distinction between distributions where you used the card or just requested cash reimbursement.

All distributions that you subsequently claim on your Form 8889 were "qualified medical expenses" are subject to later audit by the IRS. Retain the receipts and EOBs until at least three years AFTER the return due date (or filing date, if later) in which you claimed qualified medical expenses on Form 8889.

Think about this way: your HSA provider has NO way to know whether many apparently legitimate expenses were qualified. You paid a medical expense (e.g., doctor's bill) for your dependent child or relative with your card? How would your HSA know whether the person is actually your tax dependent?

YOU yourself may not even have known whether the kid was your dependent at the time you paid the expense with your card. (Maybe the kid you thought was your dependent at the time you paid the bill subsequently dropped out of college and got a higher paying job or joined the military or whatever and wound up providing more than half their support that year or maybe they got married later in the tax year and filed a joint return.)
Thanks for the info. Probably not much point in even going to the trouble to upload the receipts then - just file them away on your own.
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Re: HSA withdrawal logistics

Post by grabiner »

RickBoglehead wrote: Fri May 07, 2021 9:47 am 2) Consider NOT using your HSA at all, and instead saving every receipt and determination of benefits for many years down the road. Let the HSA build and build and build tax free.
This only makes sense if you are maxing out your retirement accounts. If not, then it's better to pay a $1000 medical bill from the HSA, and use the $1000 in cash to contribute to your Roth IRA; gains in the Roth IRA can be used for anything. Alternatively, it's better to contribute the after-tax equivalent of the $1000 to your 401(k).
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Re: HSA withdrawal logistics

Post by j.click »

But David, aren't HSA accounts one of the few tax-favored 'trifecta' options available (deductible contributions, tax free growth and tax free distributions after age 65 for health expenses)?
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Re: HSA withdrawal logistics

Post by dukeblue219 »

willthrill81 wrote: Fri May 07, 2021 11:13 am
02nz wrote: Fri May 07, 2021 8:48 am It makes no difference whether the expense was incurred today or 10 years ago, as long as it was after the HSA was opened (or after your first HSA was opened, I believe). The plan administrator may provide a way for you to track receipts, but in terms of documenting that the expense was eligible for reimbursement from the HSA, you're ultimately accountable to the IRS.
Correct. Your administrator shouldn't be asking for receipts. But the IRS might, especially if you get audited.
Many folks coming from the FSA world expect HSAs to be burdensome when trying to spend money, and are surprised that you can get reimbursed for literally anything under essentially an honor system. There is no approval mechanism. But if you can't backup those expenses to the IRS, you have a problem, and credit card statements showing a paid expense to a doctor are not sufficient.
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Re: HSA withdrawal logistics

Post by willthrill81 »

j.click wrote: Sat May 08, 2021 6:36 pm But David, aren't HSA accounts one of the few tax-favored 'trifecta' options available (deductible contributions, tax free growth and tax free distributions after age 65 for health expenses)?
If the scenario he's describing, you still get to take advantage of deductible HSA contributions. But by making a Roth contribution with the funds in question rather than leaving them in the HSA, you then get tax-free growth and tax-free distributions after age 59.5 for all types of expenses, not just qualified medical expenses as you would with the HSA.
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