HSA contribution after incurring medical expense

[falalala]

I have an HSA with $200 in it as of Jan 1, 2023. I get an employer contribution of $50 biweekly through payroll deductions. As of April 30, 2023, I had a balance of $600. By the end of the year, my balance is expected to by $1,200 if I don't withdraw anything.

Caveat: All my HSA contributions are non-qualifying. I have paid and will be paying all relevant excise tax (6%), but don't want to pay 20% penalty. Long story in another post, but I can't get my employer to stop the contributions.

On May 1, I had a medical procedure that cost me $800, but my HSA balance at the time was only $600. I will pay the $800 via my personal credit card when the bill comes due.

Question 1: Once my HSA balance reaches $800, can I withdraw the full $800 as a reimbursement toward the medical procedure or can I only withdraw $600, which was the HSA balance at the time of the procedure?

Question 2: Can I use up the remaining HSA balance for other medical expenses that my spouse incurs? They are not on my HDHP.

Thank you!

[Bsch4477 · Accepted solution]

1.  You can use the $800

2. You can use your HSA funds for your spouse’s unreimbursed medical expenses. 

[falalala]

Thank you! Do you have a specific location in the IRS pubs that I can review?

[Mike9241]

you don't explain why  your HSA contributions are non-qualifying.  

but here's what IRS PUB 969 says (the HSA section) on excess comntributions.

Excess contributions. You will have excess contributions if the contributions to your HSA for the year are greater than the limit. Excess contributions made by your employer are included in your gross income. If the excess contribution isn’t included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return.
Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Quali-fied Plans (Including IRAs) and Other Tax-Favored Ac-counts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the ac-count. 
You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount with-drawn if you meet the following conditions.
• You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
• You withdraw any income earned on the withdrawn contributions and include the earnings in “Other in-come” on your tax return for the year you withdraw the contributions and earnings.

in other words you don't have to wait until you get a medical bill to take out excess contributions. you contact the administrator/trustee on or before 4/15 of folloing year and request withdrawal of excess contributions and earnings. telling them is a withdrawal of excess contributions and the amount is important becuase they need to calcualte any earnings that need to be withdrawn. 

[Bsch4477]

https://www.irs.gov/pub/irs-pdf/p969.pdf

[falalala]

Thank you for the pub 969 link @Bsch4477.

@Mike9241 Yes, I want to withdraw, but the employer doesn't let me. Believe me I tried for several months last year. It's employer contributions only. I am not contributing myself. So I need to reimburse against medical expenses and pay that excise tax. I just don't want to keep paying it every year. So I am going to withdraw as much as I can!

[dmertz]

Are you sure that it's an HSA and not an HRA?  Your employer has no say in whether or not you can request that the HSA custodian make a return of excess contribution, that's between you and the HSA custodian.  (Your employer is not an HSA custodian.)

[Mike9241]

@falalala I have to agree with @dmertz it sounds like you have an FSA which is completely different than an HSA. you need to find out exactly what you have.  an employer has absolutely no control over whether you can withdraw funds from HSA.  That's completely different than an FSA. in order to withdraw funds from an FSA you must submit legitmate medical bills to your employer.  If you don't use them by the deadline the amount in the account is suppose to be forfeited to the employer under the tax laws. there are no excess contributions for an FSA. There is no 6% penalty.   does your w-2 reflect any amount in box 12w of the W-2? if not that's even more evidence that you have a FSA.