The IRS requires that you keep receipts for all your Health Savings Account (HSA) spending. HSA distributions (money taken from an HSA account) are nontaxable, but only when the money is used to pay for qualified medical expenses.
Recordkeeping Requirements
Good recordkeeping avoids future tax headaches. Essentially, any money that comes out of your HSA must have a receipt showing it was for an eligible medical expense. You may face a 20% penalty on any distribution that you cannot prove was for a qualified medical expense.
The only time you don't need a receipt showing the distribution was for an eligible medical expense is when you rollover funds into another HSA. In this case, the distribution is accounted for on your tax return.
The IRS Provides this Guidance:
You must keep records sufficient to show that:- The distributions were exclusively to pay or reimburse qualified medical expenses,
- The qualified medical expenses had not been previously paid or reimbursed from another source, and
- The medical expenses had not been taken as an itemized deduction in any year.
Do not send these records with your tax return. Keep them with your tax records.
For reference, see IRS Publication 969 (Health Savings Accounts > Deemed Distributions from an HSA, under "Recordkeeping")
Follow These Steps
- Keep records of all HSA documentation for as long as your income tax return is considered “open” (subject to an audit), or as long as you maintain the account, whichever is longer.
- Hold on to any insurance carrier’s Explanation of Benefits (EOB) statement that documents your expenses for services covered under your HSA-eligible health plan.
- Keep receipts for all other items purchased with your HSA, for example, vision and dental services.
To simplify recordkeeping, electronic records are acceptable.
There's No Time Limit for Reimbursing Yourself
- As long as you had an HSA when you incurred the qualified medical expense, you can reimburse yourself at any time.
- It makes no difference how much time has passed.
- Even if you're no longer on a HSA-eligible health plan, you can still spend money from your HSA. (You can always spend your HSA dollars. You just can't contribute to your HSA if your plan isn't eligible).
For reference, see IRS Publication 969 (Health Savings Accounts > Distributions from an HSA)
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FAQs
All receipts should include the amount paid, who it was paid to (payee's name or code), and the date of the transaction. Some purchases require a letter of medical necessity or prescription in order to be eligible.
How do I document HSA reimbursem*nt? ›
Document all medical expenses
To justify spending money on a qualified medical expense, you should keep or track your expense receipts. Receipts should be kept for as long as your tax return is open and subject to an audit; usually three years. Or as long as your HSA is open. Whichever is longer.
How do I organize my HSA receipts? ›
For physical receipts, you can scan them into your computer or use a new folder for each year's receipts to keep them somewhere safe. Remember, ink fades over time so you really do need to digitize these. You can use any storage and filing system you like for digital receipts.
What documents do I need to keep for HSA? ›
Hold onto every receipt and statement
As for what HSA documents to keep, hold onto HSA purchase receipts, HSA account statements, employer contributions, and documents that explain services or products you've paid for.
What is HSA receipt loophole? ›
Again, you don't have to reimburse yourself for those medical expenses in the same year, or the same plan year that you incur those medical expenses. If you incur that medical expense, you can just write it down. And then you can reimburse yourself from the HSA at a later date.
Do you have to show proof of HSA expenses? ›
Verification of expenses is not required for HSAs. However, total withdrawals from your HSA are reported to the IRS on Form 1099-SA. You are responsible for reporting qualified and non-qualified withdrawals when completing your taxes.
How many years keep HSA receipts? ›
Stay prepared for an IRS audit by saving HSA receipts for up to 7 years. You'll also want to maintain records of any deductions claimed on your tax return.
Can I use my HSA to reimburse myself for medical expenses? ›
Yes, as long as the IRS-qualified medical expenses were incurred after your HSA was established, you can pay them or reimburse yourself with HSA funds at any time.
How do you document medical expenses for taxes? ›
If you elect to itemize, you must use IRS Form 1040 to file your taxes and attach Schedule A. On Schedule A, report the total medical expenses you paid during the year on line 1 and your adjusted gross income (from your Form 1040) on line 2.
How is HSA reported to IRS? ›
File Form 8889 to: Report health savings account (HSA) contributions (including those made on your behalf and employer contributions). Figure your HSA deduction. Report distributions from HSAs.
HSA Contribution
- Go to Lists, then Payroll Item List.
- Select Payroll Item and select New.
- Select Custom Setup and select Next.
- Select Company Contribution and select Next.
- Enter the item name (for example, HSA Company taxable or HSA Company nontaxable) and select Next.
Toiletries are not eligible for reimbursem*nt with a flexible spending account (FSA), health savings account (HSA), health reimbursem*nt arrangement (HRA), limited-purpose flexible spending account (LPFSA) or a dependent care flexible spending account (DCFSA).
Can you use HSA for dental? ›
You can also use HSAs to help pay for dental care. While dental insurance can help cover costs, an HSA can also help cover any out-of-pocket expenses resulting from dental care and procedures.
What do I do with my HSA receipts? ›
Keep records of all HSA documentation for as long as your income tax return is considered “open” (subject to an audit), or as long as you maintain the account, whichever is longer.
What is the best way to track HSA expenses? ›
The IRS requires that you maintain records of your HSA purchases. TrackHSA.com provides this proof by storing receipts for HSA purchases. If you pay for purchases out of pocket, you can track and justify the reimbursem*nt to the IRS when it occurs.
How should I allocate my HSA investments? ›
Here are three common allocations:
- 60/40 portfolio: You'll split your assets with 60% in stocks and 40% in bonds.
- 80/20 portfolio: You'll split your assets with 80% in stocks and 20% in bonds.
- Age-based: As you age, your risk tolerance declines.
Best ways to invest an HSA
- Money market funds. If you keep a relatively small balance in your HSA or you plan to regularly tap the account, it could make sense to go with low-risk, low-return options such as money market funds. ...
- Stocks and funds. ...
- Fixed income. ...
- Robo-advisor.
