Has account refund from dentist

[believ3bee]

My dentist does not bill my insurance so i have to pay with my HSA and about a week later I receive a check for the amount I was responsible to pay. If I dont deposit that check into my Hsa is it technically not spend on medical expenses even though I have a receipt from my dentist for what I paid?

[Carl]

Don't go there. You're begging for an audit down the road. There is a difference between a technicality and a legality.

[BMcCalpin · Accepted solution]

Carl is right, this is not the proper way to handle this situation.

The HSA should be used only for "qualified medical expenses", not medical expenses that you have reason to expect to be reimbursed for.

What you should do is

1. Pay the dentist immediately with your own credit card (or other after-tax vehicle like a check).

2. When the insurance reimbursement comes in, apply it to your credit card bill.

3. After the insurance comes in, then figure out the difference (the amount that wasn't reimbursed). then call the HSA administrator and ask for a reimbursement of that difference.

4. The HSA administrator will send you a check of pre-tax dollars which you will apply to your credit card bill for the balance of the original dental bill that was paid in post-tax dollars.

You can get distributions from your HSA at any time to repay yourself with pre-tax dollars for qualified medical expenses that you originally paid with post-tax dollars, so long as the original expense was incurred after you started your HSA...yes, even years later.

If the IRS discovers that you have been using your HSA to pay for medical expenses which you know will be reimbursed by insurance (which you then try to put back into your HSA for another deduction), it will look like you are trying to double-dip on deductions. Don't do it. 

[believ3bee]

So even if i put it back into my account it still doesn't count as a medical expense? I think I just rather change dentist. The reason i was putting so much money into my Hsa was to pay for all my doctors visits. Unfortunately alot of businesses in my town don't bill to my insurance which sucks because then I have to do all the filing of claims for my visits. Kind of pointless to have an hsa account then.

[dmertz]

If you will be reimbursed for the expense, as you were in this case by your insurance, it's not a qualified medical expense for the purpose of an HSA distribution or a Schedule A deduction.  Your HSA can only be used to pay for expenses that you pay out-of-pocket such as co-pays, deductibles and medically necessary procedures or prescription drugs that your insurance does not cover.

The main purpose of the HSA is to allow you to have insurance with a high deductible and to be able to pay the uncovered expenses with tax-free money.  Effectively, the US government is subsidizing your health coverage.  Invested appropriately, money in an HSA grows tax-free if eventually used for qualified medical expenses for you, your spouse or your dependents, including the payments for Medicare once you reach age 65, so there can be a huge benefit to the HSA even if you do not presently have qualified medical expenses to on which to use the HSA money.  As long as the money is eventually used tax-free for qualified medical expenses, an HSA is more beneficial for saving than a Roth IRA.

[BMcCalpin]

Listen to dmertz - having an HSA is a huge benefit. If your marginal tax rate is 15%, then it is like you getting a 15% discount on every out-of-pocket payment that you make ("such as co-pays, deductibles and medically necessary procedures or prescription drugs that your insurance does not cover"), because you pay the out-of-pocket expenses from your HSA which is tax-free.

This is a much better deal than trying to deduct medical expenses on Schedule A as an itemized deduction.

Yes, because your dentist doesn't bill the insurance first, you have to go through this 4-step process I listed above - but it's better than not getting the 15% discount.

[believ3bee]

thanks 🙂

[dmertz]

Because you were reimbursed for this expense by the insurance company, it is not a qualified medical expense.

As the others have said, you shouldn't be using HSA funds (including your HSA debit card) to pay a medical expense for which you know you will be reimbursed by insurance.  HSA custodians are permitted, but not required, to accept a "return of mistaken distribution."  If you know that you will receive reimbursement from the insurance company, it's difficult to establish that the distribution from the HSA was a mistake.  If the custodian is willing to accept a return of mistaken distribution, you'll need to send the money back to the HSA as a return of mistaken distribution so that the custodian treats and reports it as if it had never been distributed.

If the money cannot be returned to the HSA, unless you have previous unreimbursed medical expenses incurred after the establishment of the the HSA to which you can apply the HSA distribution, you'll pay taxes and, if you are under age 65, a 20% penalty on this distribution that was not used for qualified medical expenses.

[dmertz]

Keep in mind that you are also not permitted to apply this distribution to any medical expense which you included on any Schedule A line 1.

[believ3bee]

so how should i handle the situation now that i already paid the dentist with my hsa. should i cash the check and pay another medical expense like my chiropractor so that then it will count as a qualified medical expense?

[dmertz]

A non-reimbursed chiropractic expense would be a qualified medical expense.  As long as you have receipts and other documentation to show the medical expenses and can substantiate that you did not receive reimbursement for those expenses, I don't see any problem applying the money to a different medical expense that you incurred after the establishment of the HSA.  I'm not sure that I would try to applied a distribution to a future medical expense.  The law requires that the distribution be used *exclusively* for qualified medical expenses, but is relatively silent on the relative timing of incurring the expense and receiving the distribution.  Should the IRS ever question that a distribution was used for a qualified medical expense, it would be easier to establish that a distribution was used exclusively for a qualified medical expense if the distribution was made after the expense was incurred.

[LillyD2020]

Hi all. I have been reading the comments about HSA distribution and more confused now. 
So, I got treated by my dentist and paid by HSA like always because they are not in the network and I was not expected to get paid from insurance. Time goes by and 6 months later they told me that they got my insurance money, which I was surprised. I learned that they submitted claim but very late.  Due too Covid I didn't leave money at the dentist and ask them to credit back my HSA account. Did I do something wrong? How to handle the situation?  Thanks. 

[dmertz]

LillyD2020, did you originally pay the dentist using a debit card associated with your HSA?

By "credit back" to you HSA, do you mean process a credit against that debit card?

Return to the HSA of a mistaken distribution is subject to the HSA accepting such a return of mistaken distribution.  If the HSA custodian does accept the return of mistaken distribution, the HSA custodian must issue a corrected Form 1099-SA if one had already been issued that included the mistaken distribution.

[CJ631]

So if I paid a dentist with the HSA, and later found out that the insurance will cover a portion of the total (50% up to a max of $3,000) which I didn't know at the time, can I just not put it through my insurance and never get reimbursed from the insurance in the first place?   If I'm not reimbursed by the insurance, then the orthodontia work is still a qualified dental expense?  Please advise.  

[DianeW777]

You can handle the situation as discussed in the link by our wonderful Tax Expert @BMcCalpin,  printed here for your convenience. 

When you get reimbursed for something that you paid for with HSA dollars, this is a "Mistaken Distribution". What you need to do is this:

1. Contact your HSA administrator and tell them that you had a mistaken distribution (use that phrase). You may be able to report this through their website (go look).
2. Complete the mistaken distribution form and send it to the HSA administrator.
3. Also send the HSA administrator a check for the amount of the mistaken distribution.

The HSA administrator should send you a corrected 1099-SA to account for this "distribution".

You cannot convert money paid for with HSA dollars into personal money (like other family expenses) - these distributions are not only taxable at your regular income tax rates but you also are hit with a 20% penalty.  

The safest thing to do when you think you may get insurance or other reimbursements for doctor bills is to pay the amount from your regular checking account or credit card, and then after the insurance and other reimbursements come in, then you pay yourself for the unreimbursed amount from your HSA; that is, you contact your HSA administrator and asked to be reimbursed for unreimbursed medical expenses (they will send you a check from your HSA which you CAN use for family expenses). All this keeps the paperwork right with the IRS.

@CJ631