Can I use hsa mistaken distribution form to pay back everything for this year so I can instead use the medical expenses deduction?

[bschackel]

We have had way more medical expenses this year than expected ($40k) and are therefore way beyond 10% of our income so we qualify for the medical expenses deduction.  However, we already paid for more than half of expenses ($25k) with our HSA before we realized that we would qualify for the medical expenses deduction.

I need to know if I can use the mistaken HSA distribution form to refund all of our expenses to the HSA this year (hopefully without any penalties) and instead use the medical expenses deduction when we file our returns.

This is especially important because if the Tax Reform Bill passes then this will be the last year that the medical expenses deduction is allowed.

[Critter]

Ask the HSA administrator ... but I doubt you will be able to just return the distributions as you want to do.

[dmertz]

As Critter#2 indicated, it's up to the HSA administrator to accept your stated reason that the distribution was a mistake and to allow a return of mistaken distribution.  While a distribution for an expense for which you later unexpectedly receive reimbursement is clearly a mistaken distribution, it's not clear that changing your mind to instead claim a valid expense on Schedule A would qualify as a mistake.

[bschackel]

HSA says mistaken HSA deposit can be made as "repayment of a mistaken distribution or distributions as defined by the IRS (resulting from a mistake of fact due to reasonable cause)". I'd argue "mistake of fact" & "reasonable cause" is that the government is changing the rules (aka the facts) to eliminate medical expenses deductions so that if there are high medical expenses in the future the only way to get a deduction is through the use of an HSA.  Therefore it makes more sense to refund it now because it is the only way to get a deduction in the future (aka reasonable cause).

[Critter]

You will need to make the argument to the HSA administrators not us ... good luck.