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?

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According to Fred <[email protected]>:

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.

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.



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"John Levine" wrote in message news:skv03v$1jgh$[email protected]...

According to Fred <[email protected]>:

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.

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.

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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According to Rick <[email protected]>:

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.

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.

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.

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.

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John Levine, [email protected], Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. https://jl.ly

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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

========================================= MODERATOR'S COMMENT:

Please include the part of the prior message you are responding to, and
place your answer after that. People shouldn't have to scroll back to
prior messages to understand what is going on.

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It appears that Maria Ku <[email protected]> said:

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.

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.

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Regards,
John Levine, [email protected], Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. https://jl.ly

--
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<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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On Wednesday, October 27, 2021 at 9:57:41 PM UTC-4, John Levine wrote:

It appears that Maria Ku <[email protected]> said:

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.

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.
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John Levine, [email protected], Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. https://jl.ly
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Yes, electronic images of receipts are acceptable.

Ira Smilovitz, EA
Leonia, NJ

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