How to report hsa medical expenses

[pangho]

Hi all, I have an HSA account set up in 2016, used about $4k for oral implant in 2107 and paid with my HSA debit card. Had more implant work done by the end of 2017 which costs about $6.5k. I had to pay with two other credit cards since I don't have sufficient fund in my HSA. My questions: can I still deduct the 6.5k as medical expenses? How?  Thanks.

Pang

[Opus 17 · Accepted solution]

You have two options.

Since the expenses were not paid with tax-advantaged funds, you can deduct them as a medical expense itemized deduction in the year you paid them (2017 or 2018) -- this means when you paid the provider, even if you used a credit card to pay off later.  However, because of the limits on itemized deductions, you probably won't see any actual tax benefit unless you have a lot more expenses.

Or, you can reimburse yourself from the HSA.  You can do this as long as the account was opened before the expenses were incurred, even if the account was empty at the time of the expense.  Basically, you deposit funds in the HSA, wait a day, then immediately withdraw them to either pay the credit card bill or reimburse yourself for the money you already spent.  You are essentially "washing" your money through the HSA to get the tax benefits.

You can do this up to your annual contribution maximum, or the amount of the expense, whichever is less.  You just can't reimburse yourself for any credit card interest.

For example, if you already contributed $1000 for 2018, and you have single coverage, you could contribute another $2400, then withdraw it a few days later, and pay the credit card or reimburse yourself if you already paid the credit card.  You'll get the tax deduction on your 2018 tax return.  Then you can deposit and withdraw another $3400 in 2019, and so on until you have equaled the amount of the expense.  

[pangho]

Hi SuperUser, thanks for your thorough answer. I opened my HSA account before 65. I am now 65 and a half and I understand I can no longer contribute to my HSA account.  Can I  still deposit money in my HSA to reimburse myself?  I paid my implant expenses at the end of 2017.  Thank you again in advance!

Pang

[pangho]

Hi SuperUser, thanks for your thorough answer. I opened my HSA account before 65. I am now 65 and a half and I understand I can no longer contribute to my HSA account.  Can I  still deposit money in my HSA to reimburse myself?  I paid my implant expenses at the end of 2017.  Thank you again in advance!

[dmertz]

You cannot contribute to an HSA for any months that you are covered by Medicare.  Most people sign up for Medicare at age 65, so if you did so you are ineligible to contribute for those months.  If your Medicare coverage began January 1, 2018 or earlier, you cannot contribute to an HSA for 2018 and beyond and your only option is to claim the 2017 expense as a deductible medical expense if doing so will increase your itemized deductions for 2017 high enough.

Note that in TurboTax, when asked for your medical expenses under Deductions & Credits you must enter all of the expenses, including those paid using your HSA.  TurboTax automatically subtracts from that the amount of HSA-paid expenses reported when determining your medical-expense deduction.

[Opus 17]

Yeah, that's a foul for incomplete information.

If you are subscribed to Medicare, your only option is to try and deduct the expenses as an itemized medical expense subject to the 7.5% rule.  You can list it in Turbotax, and the program will give you the deduction if you meet the thresholds.  Remember that you "pay" the expense when you pay the PROVIDER, even if you use a credit card that you will be paying off over time.

[dmertz]

When you pay is not relevant.  What's relevant is the date on which the expense was incurred, which is the date on which the service is performed.

[Opus 17]

For HSA reimbursement, the incurred date determines if it is eligible for reimbursement.  But isn’t it the case that for cash basis taxpayers, the itemized deduction is taken when the provider is paid, and not the service date?

[dmertz]

Yes, sorry, I had HSAs on the brain.  Disregard what I said in my previous comment.  For a Schedule A deduction it is indeed the date paid that is relevant.