Can I fund and use my HSA to pay for last year's expense?

[mzhang86]

Hi, 

I had a HDHP health plan in 2014 which included a HSA account. At the end of 2014 I had around $50 remaining. 

From  2015-2021 I had traditional health insurance which did not include an HSA. I did not touch the $50 remaining in my HSA account. For 2022 I have re-enrolled in a HDHP health plan with a HSA account. I now have two HSA accounts. The old one ($50) and the new one. 

At the end of 2021, we had a major medical event resulting in a $6k bill. Can I partially fund my old HSA today and use it towards the medical bill? I did search online and I kept seeing "As long as the HSA was established before you incurred the medical expense, an HSA can be used to reimburse that expense years later." Does the gap from 2015-2021 when I was ineligible for a HSA matter?

Thanks. 

[Bsch4477]

No, the gap doesn’t matter and you can use it. 

[Opus 17 · Accepted solution]

You didn't have a gap in your HSA history so no worries. 

You can also take the distribution from the new HSA or the old, it doesn't matter.  And you can rollover the remaining $50 from the old account into the new account if you like.  What matters is that you had an HSA open and available, it doesn't have to be the same account every time.

If you make payroll contributions, your tax savings will be slightly higher, since payroll contributions are exempt from social security and medicare tax as well as income tax.  But it would take all year to fill up the account instead of doing a lump sum. 

[BillM223]

Your question is addressed by IRS Notice 2008-59.

Question 41 states:

"Q-41. On what date is an HSA established if the account beneficiary had
previously established an HSA?
A-41. If an account beneficiary establishes an HSA, and later establishes
another HSA, any later HSA is deemed to be established when the first HSA was
established if the account beneficiary has an HSA with a balance greater than zero at
any time during the 18-month period ending on the date the later HSA is established. "

When I first read your question, I remembered the 18-month limit to the gap. However, I was thinking of the wrong 18 months - I was thinking of 18 months after the end of the first HSA and HDHP, but I see now that the text clearly says, "the 18-month period ending on the date the later HSA is established."

Assuming that you still had money in the old HSA in the 18 months prior to when the new HSA was created (it was created on the date that you initially funded it), then the new HSA has the start date of the old HSA and you are good to go.

That is, if you funded the new HSA on January 1, 2022 (for example), then you needed to have a non-zero balance in the old HSA on July 1, 2020 (or later, of course).

However, I do have the concern if you still had money in the old HSA on that date. In my case, the HSA custodian's fees would have drained the account years ago, so that would cause me to fail the 18-month test if I were in the same situation.

[Edited 1/12/2022 | 4:36 PST]

[Opus 17]

---

@BillM223 wrote:

Actually, no, you can't make a prior year contribution to your old HSA.

The reason is that to make an HSA contribution for a prior year, you have to have had HDHP coverage in that prior year. You apparently did not have HDHP coverage in 2021. 

The contribution applies to a tax year for which the contribution is intended; in this case, your contribution before April 18, 2022 for the prior year, would have bee deductible in tax year 2021. However, because you did not have HDHP coverage in tax year 2021, you cannot contribute to either HSA for 2021.

Your new HSA is considered established on the date that you first funded it (presumably in 2022). Had the gap been less than 18 months, then the start date of the new HSA would have been the start date of the old HSA. But 5+ years is too much of a gap. And since you did not have HDHP coverage in 2021, you can't make the contribution anyway.

---

The taxpayer did not ask to make a 2021 contribution to the new HSA, they want to make a lump sum 2022 contribution and then immediately withdraw it to reimburse themselves for a 2021 expense.  And the taxpayer can do this because account #1 which was opened in 2014 is still open.  There has been no gap in the existence of the HSA account.  At worst, the taxpayer can use their 2022 eligibility to make a lump sum contribution to account #1 and then withdraw it to reimburse themself.   However, I also believe that because account #1 has been open continuously, the taxpayer could contribute either to account #1 or account #2 and then withdraw to reimburse themself. 

[BillM223]

.

[Edited 1/12/2022 | 4:31 PM PST]