HSA Reimbursement from Distribution between 2 years - Corrected Form 1099-SA?

[Lyndsay2]

• I had paid a medical bill using my HSA in November 2022.
• My insurance paid the bill to the provider in December 2022.
• I was refunded by the medical provider in January 2023 and currently my HSA administrator shows this as a contribution.
• I am filling out a Tax Correction Form with my HSA administrator to show it as a reimbursement from distributions.
• The administrator already provided me with the Form 1099-SA for my 2022 taxes and my assumption is the distribution from November 2022 is included on that form.

Do I need to request a corrected Form 1099-SA for 2022 tax records? How does that work if the refund was in January 2023? 

Any help or guidance would be greatly appreciated.

[BillM223]

"I am filling out a Tax Correction Form with my HSA administrator to show it as a reimbursement from distributions." - I am pleased that the HSA administrator is willing to do this. Normally, you the taxpayer have to jump through hoops to get this straightened out.

At the same time that you are having the conversation with the HSA administrator about the "tax Correction form", you can also bring up the topic of a corrected 1099-SA. I am not sure how the administrator will want to handle this situation. Technically, it's a Mistaken Distribution in 2022 (i.e., you paid for something out of the HSA that was a mistake). 

In the normal case of a Mistaken Distribution, you would fill out a form, send the administrator the dollar amount that was distributed, and the administrator would correct the paperwork. However, in this case, the administrator already HAS the dollar amount, because it was returned by the insurance company. You'll need to ask them if they can straighten this out without any more intervention on your part.

NOTE: this is a good reason to NOT pay medical bills with your HSA card if there is a chance that some or all of it will be reimbursed by insurance. Instead, you should pay the bill with one of your credit cards, and then after the insurance pays, you can call the HSA administrator and ask to be reimbursed from your HSA for the amount that was not covered by the insurance.

Make sense?

[Lyndsay2]

Thank you for your help. Yes, it was in appeal through my insurance carrier and I did not think they would end up paying. I have learned my lesson.

Now I am being told by the HSA administrator that because it was paid with the HSA debit card, I don't need to do anything and don't need to fill out a corrected form and that it will be fixed on the 2023 1099-SA. Does that sound right?

[BillM223]

It sounds like the HSA administrator is confident that they will straighten out their internal paperwork and don't see the need to correct the 1099-SA. In my experience, it is difficult to get such administrators to change their internal processes.

What I would do is to document everything about this situation for both years and keep them in your tax files (with references from one year to the other) in case anyone ever asks. I have not heard of audit letters on HSAs, but it has to happen sometime, so just be sure that you are ready to tell the IRS (if necessary) what happened and why your tax returns are different from the HSA administrator's paperwork.

So long as you mark these distributions as for medical expenses, your tax due should not be affected. (your 8889 will be different however, and this is what you should be prepared to explain).

[dmertz]

If the HSA administrator included the mistaken distribution in box 1 of your 2022 Form 1099-SA and they accept a return of the mistaken distribution, the HSA administrator must issue a corrected Form 2022 1099-R, reducing the amount in box 1 by the amount of the mistaken distribution returned.

From the instructions for Form 1099-SA in regard to the custodian accepting a return of mistaken distribution:

"Do not report the mistaken distribution on Form 1099-SA.  Correct any filed Form 1099-SA with the IRS and the account beneficiary as soon as you become aware of the error."