@prda0401
I disagree that the money is necessarily subject to a 20% excise tax. You have added on to an old discussion and you have not provided any specific details for your situation. If you paid the expenses in 2022 in good faith, and then you received the refund also in 2022, then you should try to return it to the HSA account as a mistaken withdrawal. If you can’t return the money, and if you don’t have other 2022 medical expenses that can offset the distribution, then you would be subject to the excise tax.
However, if you paid the medical expenses in a past year in good faith, and received the refund in 2022, then I don’t believe you are subject to the additional 20% excise. You would simply report the refund as “taxable other income“ in the category of a taxable recovery, that is a reimbursement of a previous tax deductible item. (If it is a refund of a reimbursement from a prior year, you wouldn’t be able to return it to the account as a mistaken distribution distribution, even if you had not changed accounts.)
