My HSA is no longer employer-sponsored, so it therefore managed by some other "custodian" party or company which charges a monthly $4 fee for use of their service. I believe that fee is not considered a qualified medical expense, but I want to make sure.
Is a monthly fee to manage an HSA a qualified medical expense?
The following side notes can be ignored as it's unimportant to my question: I do not find this clarification in the IRS list, nor in the custodian company list, yet I have received a 1099-SA with distributions totaling those fees, so for anyone out there reading this question who manages such FAQs/lists, it would be great if you could update your FAQs. Another aside, regardless of the answer about HSA fees actually being qualified medical expenses, it seems they should be considered qualified because an HSA to some extent contains medical records, and, as well, managing an HSA can be viewed as indirectly connected getting proper medical care in the future (consider stopping an HSA and taking a penalty and being with less than desired medical expense money at such a future time, as just one example). It seems silly that this is not a qualified expense. I'm certainly not seeing the money, yet someone has my entire HSA funds which, I'm guessing, are being invested and used in some manner. For that participation, someone else is getting the fee for managing those funds. I hold out I may be missing an important nuance here (please let me know if you think so), but paying a small fee for an HSA seems strongly connected with managing a positive healthcare plan overall, including HSA. Just my current thinking. Thanks for any answers!
Could it be that you pay for the HSA from a credit card or direct deposit from another account or something other than you HSA itself? My HSA fee is deducted from the HSA itself so I believe it would have to be considered a distribution. (?)
"If administration fees are withdrawn from the HSA, are the withdrawn amounts treated as taxable distributions to the accountholder?
Amounts withdrawn from an HSA for administration and account maintenance fees will not be treated as a taxable distribution and will not be included in the account beneficiary's gross income."
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The fee is not a medical expense but it is neither a distribution taxable to the recipient.
You go on to state " I have received a 1099-SA with distributions totaling those fees"
The advice is the custodian has filled out the 1099-SA wrong and reported those to the IRS as distributions. The custodian needs to provide a corrected 1099-SA.
You have to followup with the custodian.
If the custodian refuses to correct the 1099-SA get that information in writing from then and you would need to retain the supporting documentation that they are refusing to correct the 1099-SA.. You could then paper file using your corrected distribution amount(amount not including the fees) and include a letter of explanation why your box 1 reporting to IRS is different from the custodians. Clearly state that the distributions were fees taken directly by the custodian and were not distributions made directly to you the recipient, (Account statements would support those were taken as fees and not distributions) and are expenses not to be reported in box 1 of form 1099-SA as distributions.
I had this same problem. UMB Bank reported all my monthly account maintenance fees as gross distributions on a 1099-SA. This pushed me to the higher level of Turbo Tax ($60) plus I am now paying a 20% distribution fee since the maintenance fees are not medical expenses. Headache!
azandyman is correct:
"The fee is not a medical expense but it is neither a distribution taxable to the recipient. "
If the custodian is UMB, when you call UMB, the response you're likely to receive is you need to call ConnectYourCare. When you call ConnectYourCare, they will tell you to call UMB. Do not fall for this trap! From the beginning, inform UMB the monthly maintenance fees are not a distribution, and you will not waste time making another phone call. Tell them to document this information for a supervisor, and you want a supervisor to call you back after they have corrected the 1099-SA. Also ask them when you can expect a call back.
The first time this happened to me, I wasted a lot of time calling UMB and ConnectYourCare because both refused to take ownership of the problem. The next time this happened, I sternly told UMB what they needed to do, and not to waste my time. I placed a call to UMB on a Wednesday, and was told I would get a call back within one business day. I got a call from a supervisor on Friday that they had issued a corrected 1099-SA with a gross distribution of zero.
It's 2021 and I'm doing this again! UMB once again attributed the ~$40 in fees as gross distribution so I'm back on their customer service line getting them to correct the tax form.
I'm looking at transferring my UMB account to another provider. This is just incompetence! Big thanks to the folks in this thread for the info.