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Bill
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3153
Experience:  EA, CEBS - 35 years experience providing financial advice
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I have an HSA. I put approx. $1,500 in it per year and take

Customer Question

I have an HSA. I put approx. $1,500 in it per year and take a deduction for it as as adjustment to gross income. I incurred approx. $2K qualified medical costs during the year. They were out of network but were covered. The insurance company sent the money to me directly. Can I make a an additional contribution into the HSA for $2k and pay the medical costs out of the HSA? I am basically taking the insurance company $ and creating a tax deduction for it.
Submitted: 1 year ago.
Category: Tax
Expert:  Bill replied 1 year ago.

If the insurance company reimbursed you for the medical costs you paid by sending you a check then you could not also withdraw from the HSA for those expenses. However, you could contribute to the HSA assuming you are still eligible to contribute to a an HSA and have not already exceeded the amount that can be contributed for the year.

Customer: replied 1 year ago.
The medical costs have not been paid yet. The insurance company is sending me the money to pay the medical costs. Rather than pay them directly I was going to pay them out of the HSA. Can I not run them through the HSA?
Expert:  Bill replied 1 year ago.

The fact that the insurance company has sent you a check means that they are expenses covered by the plan and they reimbursing you for the costs that will be paid by you. These expenses would not otherwise be eligible for deduction on Schedule A. Hence, they are not expenses that would qualify for tax-free withdrawals from your HSA.

Here is text from Form 8889

"Generally, qualified medical expenses for HSA purposes are unreimbursed medical expenses that could otherwise be deducted on Schedule A (Form 1040)."

https://www.irs.gov/pub/irs-pdf/i8889.pdf

Customer: replied 1 year ago.
In summary, I could fund the HSA additional money (whether it was my money or $ from insurance company) but the distribution from the HSA to pay the medical cost would not be a qualified medical cost and would be subject to tax and penalty.
Expert:  Bill replied 1 year ago.

Yes, that is correct.

Customer: replied 1 year ago.
Thanks, Bill.
Expert:  Bill replied 1 year ago.

Thank you for using Just Answer.

Expert:  Bill replied 1 year ago.

Is there anything more you need answers to?