HSA transaction refunded

[Anonymous50]

There was an unauthorised HSA transaction made in Dec 2022. After dispute, the merchant refunded the transaction in March 2023. May I know how would my distribution/contributions in 2022 and 2023 be impacted?

I will still enter the distribution as what I received in my 2022 1099SA? but what about 2023? 

[dmertz]

If the distribution was returned to the HSA custodian as a return of mistaken distribution, the HSA custodian is supposed to issue a corrected 2022 Form 1099-SA, reducing the amount in box 1 by the amount returned.

[Anonymous50]

What if custodian is not able to do it in time?

[dmertz · Accepted solution]

There is no time limit.  If they accept a return of mistaken contribution, they are supposed to correct whatever year's Form 1099-SA showed the original distribution.

Note that HSA custodians seem to be extremely bad about correcting Forms 1099-SA for this reason.  They seem to expect you to report the amount as a rollover, but that's not really proper.

[Anonymous50]

So the custodian recognizes the error, but they can only regenerate the updated 1099 SA in May 2023.

Can I report the corrected amount now before they generate the updated 1099SA?

[RalphH1]

I’m interested in what @dmertz has to say about this latest question, but (just in case he/she isn’t available for a while...) I believe your filing now with the corrected number would be fine. The important thing in taxes is accuracy (even if there are otherwise some loose ends in the circumstances...), and your return’s HSA reporting would be accurate.

@Anonymous50, the worst-case-scenario is that it’s somehow processed before the new 1099, with the IRS system prompted to contact you about the discrepancy. But even that somewhat unlikely situation should be easily resolved with just a little communication... 

[dmertz]

I agree with RalphH1 that you could file now by entering what you expect to be on the corrected Form 1099-SA.  However, you also have the option to submit a request for extension and file after you get the corrected form.  Any expected tax liability still needs to be paid by April 18, 2023 even though you would have until October 16, 2023 to actually file your tax return, but, if you are due a refund, filing later on extension would likely mean getting the refund later than you would otherwise get it.