HSA paid for medical expenses which are later reimbursed

[Bill Tubbs]

Taxpayer had medical expenses the past few months. Her HSA through her employer was set up to automatically be drawn from anytime insurance didn't cover anything. She just found out that her physical therapy hasn't been covered and is now fighting with the insurance company. Meanwhile all that money has been pulled out of her HSA to pay the therapist.

Question is: if she is successful in getting the insurance company to pay, she would then get a refund from the therapist. Is there any provision for putting this back into her HSA? Otherwise, she may have distributions from her HSA in excess of her out-of-pocket medical and be subject to the 10% penalty on it.

Thanks,
Bill

[S T]

From a HSA Q&A

Maybe this will assist you

What happens if I withdraw money from my HSA to pay a medical bill, but then later I am reimbursed by my insurance company for that medical expense?
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That is what is referred to as an "erroneous distribution". The account holder can repay the mistaken distribution by April 15 of the following year with no penalty if there is reasonable evidence that the original distribution was made in good faith, that it was a qualified medical expense. The repayment is classified as an "adjusted entry", not a contribution; therefore it would not count "twice" toward the yearly maximum..

I haven't found the reference in the IRS pubs, etc, but still looking.

Sandy

[Bill Tubbs]

Erroneous distribution

Sandy,

Thanks for that info. I did a little searching this morning and didn't find anything on IRS.gov to corroborate your post. But it's at least enough to calm the taxpayer when I bump into her today.

Still hoping you (or someone else) has a more definitive cite.
Thanks,
Bill