Health Care

Health Care

How do health care reform and taxes connect? The Affordable Care Act is single largest change to the tax code in two decades. Find help navigating the complexities of the new health care legislation, Medicare, Medicaid and other medical deductions.

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Trusted Pioneer
Posts: 6
Registered: ‎04-09-2015
Accepted Solution

What do I do with refunded HSA money?

I paid a medical bill directly from my HSA. The money was deducted from my paycheck pre-tax, which means I didn't pay taxes on it, and my taxable income was lowered accordingly. Then part of my medical payment was later refunded to me, in the form of a check from the hospital, after my bill was adjusted.

 

If I keep the refund, it didn't go toward medical costs after all. But if I deposit it back into my HSA, then it affects my HSA income filing. What are my ethical and legal tax obligations to do with this refund check? 

 

Thanks for any advice!

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: What do I do with refunded HSA money?

Hi Fayfer,

 

 

No problem at all here.  You actually have three different options for how to handle this without any tax consequences.

 

You can:

  1. Return the money to your HSA during the same year (as soon as possible).  Make sure that you inform the account administrator/trustee if you do this because if you send them a check without explanation it will look like a new contribution.  Some account administrators/trustees may require a special form to be filled out for this option.
  2. Keep the money.  If you choose this option the funds are reported as taxable income on your tax return.
  3. Use the funds for future medical expenses for this year.  If you choose this option then the funds are listed as having been used for medical expenses & as being non-taxable on your Form 8889 as you normally would have listed them.  Do not request reimbursement from the HSA for future medical expenses that you use the funds for.

 

If you have any other questions I'll be glad to help.

 

 

Louis,

Senior Tax Advisor (Tampa, FL)

Trusted Pioneer
Posts: 6
Registered: ‎04-09-2015

Re: What do I do with refunded HSA money?

That is very helpful. Thank you!

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: What do I do with refunded HSA money?

You're quite welcome.

Pioneer
Posts: 2
Registered: ‎11-02-2017

Re: What do I do with refunded HSA money?

I'm just wondering if this changes at all if the money didn't refund the way it was stated here.  In my case, the funds were paid out of my HSA for an eligible medical expense.  At a later date, it was determined that my insurance coverage included some of the payments I had made with my HSA and the insurance company issued me a check directly.  I no longer have an HDHP plan but I'd like to put this money back into my HSA if possible.  Am I going to get taxed or is it the same scenario as laid out here?   The only thing I think is different is that in this case it's almost dual coverage competing and I no longer have HDHP.    Thanks!

Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: What do I do with refunded HSA money?

Hi instig888,

 

 

Welcome to the H&R Block community.

 

You were reimbursed for an expense that you had withdrawn HSA funds to pay for, so your options are the same as I described in the previous post.

 

However, because you no longer have a high-deductible health plan you cannot make any new contributions to your HSA, so it is extra important that you make sure the account custodian knows that you're returning funds that were contributed previously due to being reimbursed for the medical expense that you had intended to use them for.

 

You will not be taxed on the funds so long as they are returned or used for another medical expense, and you can still use the funds in the HSA to cover medical expenses until they are used up.

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Pioneer
Posts: 2
Registered: ‎11-02-2017

Re: What do I do with refunded HSA money?

Great, thanks so much for the quick follow up.

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Tax Pro
Posts: 5,780
Registered: ‎02-23-2016

Re: What do I do with refunded HSA money?

You're quite welcome.