I've never submitted a claim against my HSA. Will the IRS audit me?

[rmcelwee]

Multi-year HSA distribution without proof. Will the IRS audit me?

I currently have around $250K in my HSA. I had it with two different companies and transferred the acct to Fidelity a few months ago. I think I would like to take some profits in the stocks in the account and get a distribution for around $30K. This would be my HSA expenses for the past eight years. I do have a line item spreadsheet that my healthcare provider, Aetna, provided via their website but that is the only "proof" of expenses that I have. I have not called Fidelity yet but figured that some of you have been through this before. A few questions:

1) A few clicks on Fidelity's website and I will receive a $30K check. Do I print out my 560 line excel spreadsheet (33 printed pages) and file it with my taxes next year as proof?

2) Is this likely to trigger an IRS audit?

3) Any suggestions on how to handle the eight year claim or filing with IRS?

 

[Aerides]

I doubt it's likely to trigger anything, but besides your spreadsheet, can you produce actual documents for the expenses, if you had to? Medical bills, etc. I don't keep most of these myself save the bigger ones.

You will get a document from your HSA to include saying you took distributions, but you don't include your rational/spreadsheet/receipts when you file. You aren't asked for any supporting documents when you file your taxes.

 

[audreyh1]

You don’t file your spreadsheet. What you do is store your spreadsheet and documentation of the related expenses for several years.

What you are doing is called an HSA distribution.

 

[rmcelwee]

I doubt it's likely to trigger anything, but besides your spreadsheet, can you produce actual documents for the expenses, if you had to?

Thanks!

We moved a year ago and I trashed my box of receipts. Aetna could probably provide their "official" spreadsheet. Not sure if that is any different or not.

 

[rmcelwee]

What you are doing is called an HSA distribution.

Thanks! I have edited my original post so I don't look so dumb!

 

[jollystomper]

Think of it as charitable contributions. You might claim anything, and you may not get audited. But if you do - and if it deems the amount an anomaly - the IRS will want to see proof beyond a spreadsheet (anyone can build a spreadsheet). Been there, done that. You should have some time of proof in addition to your spreadsheet. If Aetna provided you with a spreadsheet you downloaded, can you not download the claims documents themselves? How did you pay your bills, do you have provider receipts or cancelled checks or CC statements? And so forth. Without this type of documentation, you are rolling the dice and hoping the odds stay in your favor.

Edited to add: keep in mind the documentation is not just that you were billed, but that you actually paid.

 

[rmcelwee]

Think of it as charitable contributions. You might claim anything, and you may not get audited. But if you do - and if it deems the amount an anomaly - the IRS will want to see proof beyond a spreadsheet (anyone can build a spreadsheet). Been there, done that. You should have some time of proof in addition to your spreadsheet. If Aetna provided you with a spreadsheet you downloaded, can you not download the claims documents themselves? How did you pay your bills, do you have provider receipts or cancelled checks or CC statements? And so forth. Without this type of documentation, you are playing the game of chicken.

Edited to add: keep in mind the documentation is not just that you were billed, but that you actually paid.

I could probably go the credit card route. Perhaps get some documentation from Walgreens and our old primary care physician. I'm leaning towards only submitting for $25K vs $30K so if I cannot find proof of something I will have a little wiggle room.

 

[easysurfer]

I could probably go the credit card route. Perhaps get some documentation from Walgreens and our old primary care physician. I'm leaning towards only submitting for $25K vs $30K so if I cannot find proof of something I will have a little wiggle room.

Do you have receipts of the expenses? My system consists of both receipts and a spreadsheet. The spreadsheet is chronological (expenses and contributions). I also added a field on the spreadsheet called reference number where I write the corresponding numbers onto the receipts.

So, if the IRS ever comes calling, I can easily cross reference the two. I store the receipts in a couple of fat file folder. One folder of receipts for expenses already reimbursed by my HSA. The other for ones not yet reimbursed. I've been reimbursing pretty much once a year.

p.s. Oh, just read you headline more closely. You said "distribution without proof." In that case. Do you feel lucky?

 

[Montecfo]

Only thing I would add to what has already been said is to collect your best documentation NOW. If you are using online sources, some of the records you may need you are losing access to every month via company record keeping protocols.

Grab all you can.

Spreadsheet is a good start.
Better:
Actual EOBs
Credit card receipts
Cancelled checks
Quicken records
Provider annual billing statements (have to request these)

All you can do is assemble the best info available. What will fly is hard to say. May depend on who looks at your return.

Audit? Maybe an inquiry by letter, but no audit. But if that inquiry reveals you are poorly documented and also have large charitable contributions, all bets are off. Fun times.

Enjoy. I am in the same boat. Similar balance, never a distribution till this year ( but starting small, under $10k).

 

[Aerides]

No one know the amount triggers, but do start gathering your oldest docs now. Most of them are harder to get the older you go, and unlikely to get at all after 7 years.

I take a distribution annually just so I don't have to worry about digging stuff up.

 

[rmcelwee]

I take a distribution annually just so I don't have to worry about digging stuff up.

My plan was to grow the HSA instead of taking annual distributions. When I hit $250K I decided that was good enough to start withdraws. I don't know how many people do it like that but it is interesting to see my HSA grow by $5,000 on some up market days. Hopefully I have built something over the past 10 years or so that will pay for all healthcare expenses for the rest of our lives (except premiums).

 

[rmcelwee]

Audit? Maybe an inquiry by letter, but no audit.

We went through an audit when we had our internet business (maybe 1996?). It was no sweat but they did ask some very interesting questions:

- How much do you pay to get your hair cut? (I cut my hair with the same clippers I used on the dog)

- Do you own a watch? (I showed them my watch I had in my pocket with the broken band. That was why it was in my pocket)

- How many times a week do you go out to dinner? (I haven't been out to dinner in 6 years)

- We just happened to park outside the auditors window. It was nice to point at my 1989 Geo Metro with a book value of $500. Hard for them to say I am skimming off the top when I was so damn poor.

 

[RunningBum]

Do you have receipts of the expenses? My system consists of both receipts and a spreadsheet. The spreadsheet is chronological (expenses and contributions). I also added a field on the spreadsheet called reference number where I write the corresponding numbers onto the receipts.

So, if the IRS ever comes calling, I can easily cross reference the two. I store the receipts in a couple of fat file folder. One folder of receipts for expenses already reimbursed by my HSA. The other for ones not yet reimbursed. I've been reimbursing pretty much once a year.

p.s. Oh, just read you headline more closely. You said "distribution without proof." In that case. Do you feel lucky?

I also scan each receipt with file name of the reference number so I have a backup to the paper receipts.

I realize this is no help to the OP who has tossed those receipts, but maybe for others to consider.

 

[harllee]

Be sure that you are not taking HSA distributions for medical expenses for which you have already claimed an itemized decision. That might trigger an audit.

 

[LarryMelman]

I keep my last insurance claim "EOB's" for each year which state for example:
"You've met a total of $1,813.29 toward your $3,000 in network family out of pocket expenses for 2022"

Then sometime in the future, I'll take a 1813.29 HSA withdrawal to match it. I do have spreadsheets for each year, and I download all the individual EOB's from the insurance website. But I cannot imagine anyone wanting to see all of that.

 

[RunningBum]

I can't either. But I sleep better at night knowing that if the odds beat me and I'm chosen for an audit, that I've got my documentation in place.

 

[Accidental Retiree]

My plan was to grow the HSA instead of taking annual distributions. When I hit $250K I decided that was good enough to start withdraws. I don't know how many people do it like that but it is interesting to see my HSA grow by $5,000 on some up market days.

Hopefully I have built something over the past 10 years or so that will pay for all healthcare expenses for the rest of our lives (except premiums).

You can use HSA funds to pay for your original Medicare premiums and Part D premiums.

 

[harllee]

I am moving into a CCRC next month. A substantial portion of my admission fee will be considered a medical expense for tax purposes. I can either take that medical expense as an itemized deduction on my taxes or take that medical expense out of my HSA. I am looking at all kinds of crazy numbers trying to figure out what is best.

 

[rmcelwee]

You can use HSA funds to pay for your original Medicare premiums and Part D premiums.

Thanks for the heads up. I'm only 56 but that is good info to know!

 

[teej1985]

I am moving into a CCRC next month. A substantial portion of my admission fee will be considered a medical expense for tax purposes. I can either take that medical expense as an itemized deduction on my taxes or take that medical expense out of my HSA. I am looking at all kinds of crazy numbers trying to figure out what is best.

In what scenario would it be more beneficial to itemzie than to just drain the HSA?

 

[RunningBum]

I am moving into a CCRC next month. A substantial portion of my admission fee will be considered a medical expense for tax purposes. I can either take that medical expense as an itemized deduction on my taxes or take that medical expense out of my HSA. I am looking at all kinds of crazy numbers trying to figure out what is best.

This surprises me, but it checks out. To qualify memory care or assisted living as a tax deductible medical expense you have to document eligibility that you are unable to do at least two daily living tasks like dressing, eating, etc. But it appears that the CCRC entry fee, or at least some of it, can be treated as a prepaid medical expense, which makes some sense since you are probably paying more now to be covered for such care later.

An interesting question as to whether to deduct the expense or use the HSA. You have to keep in mind that expenses up to the first 7.5% of your AGI are not deductible. If you are taking a large tIRA withdrawal thinking the income is all offset by the large expense, the larger the withdrawal the less the deduction will be. I can't guess what the best outcome will be for you. I'd guess a lot depends on how likely you are to use your entire HSA balance without using the CCRC expenses.

 

[RunningBum]

In what scenario would it be more beneficial to itemzie than to just drain the HSA?

1) You have a large CCRC entry fee that easily surpasses the standard deduction, even with the 7.5% AGI reduction.
2) In future years it is less likely you'll exceed the standard deduction, or only by a small amount.
3) You have a large tIRA yet to be drawn down with RMDs looming as a tax problem, or a lot of unrealized capital gains in your taxable account.
4) You have a reasonable expectation of draining the HSA in future years without using it this year.

This makes for an opportunity to make a large tIRA withdrawal (or stock sales) and offset much of it with the medical expense deduction, and use the HSA up in future years.

I think if you mapped out the taxes in this and future years, you'd come out better this way rather than using using the HSA now. You might come out as good or better this year using the HSA, but in future years you'd have larger RMDs without the medical deductions to offset much or any of it, so your tax situation is likely much worse in the future.

On the other hand, you might be better off using the HSA if you have a large HSA balance that you might find difficult to draw down in your lifetime, and a relatively small tIRA balance due to Roth conversions, perhaps.

 

[harllee]

In what scenario would it be more beneficial to itemzie than to just drain the HSA?

I am gong to have to pull a big chunk of the admission fee out of my traditional IRA this year (even if I pull some of it out of the HSA I will still need to take a substantial amount out of the IRA). The admission fee is high. Consequently I am going to be in a a high tax bracket this year. BY itemizing the medical expense (and some charitable deductions etc) I will be in a lower bracket and save quite a bit of taxes this year. Then going forward I can pay the medical expense portion of the my monthly CCRC out of my HSA, in those years I will be in a lower tax bracket. Of course there is also the IRMMA penalty to worry about. I have looked at many scenarios. Numbers are hard.

 

[Time2]

I withdrew $26k for medical receipts a few years ago, that we had accumulated over about 6 years. I have an envelope for each year of HSA receipts. Some say reimbursed others are waiting.