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Fairly simply question here - I had a (HealthEquity) Health Savings Account last year and, due to changing jobs, switched to a traditional plan just before the end of the year. Most of it was fairly simple; pay the bills that come in from the doctor through the online portal, keep the account funded, etc. That said, I'm also on a few prescriptions, and due to HealthEquity not providing a card, I paid for all of those at the pharmacy on my personal credit card and requested reimbursement to my bank account from HealthEquity.

My question is this: now that it's tax time, how the hell do I prove to the IRS that those HSA disbursements to my bank account were qualified medical expenses? Do I even have to? I've looked over the 1099-SA, and the 8889, and both seem to just take you at your word that the money you say you used for medical expenses was, in fact, used for medical expenses, without any proof required.

Other answers seem to imply that the IRS basically doesn't check unless you're moving big chunks of change and get audited. I suppose the credit card itself has the pharmacy name and amount on it, so I do technically have a paper trail for an audit - I'm just trying to make sure there isn't a "justification for cash disbursements" field I'm missing on IRS form XXXXX that will get me audited.

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    It's a good idea to keep receipts too. – JohnFx Feb 16 '20 at 18:46
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    Generally you don't have to submit proof of any of your claims to the IRS proactively, but you should always keep receipts and documentation in case your are audited. The statute of limitations on the IRS coming after you for minor mistakes is 3 years, for major mistakes (more than 25% of your return) is 6 years. However, if you willfully or fraudulently omit income, or if you don't file a return at all, then there is no statute of limitations. – David Feb 16 '20 at 22:13
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I've had an HSA for the last five years and have never been asked to provide any supporting documentation when filing my taxes that all my distributions were for approved medical expenses. However, in the event of an audit, I'd need to be able to produce receipts or other proof that those distributions were for medical expenses.

In the event you're audited, providing receipts from the pharmacy would be the ideal way to show the distribution was to reimburse yourself for a medical expense. If you don't have the receipts, the credit card statement you referenced might be better than nothing but I don't know if they would accept it because it doesn't show that you bought prescription medication and not, say, soda and candy at the pharmacy. Keep these documents with your tax documents for that year so they're easily accessible if you need them.

Keep in mind that you'd need to show evidence that the bills you paid through the online portal were also valid medical expenses, so you should save copies of those bills as well.

  • I know I'm late, but thank you for your response! I'm new to HSAs and taxes in general, so just knowing that I'm not drastically misunderstanding the process is helpful. Guess I'll save the receipts next time! – bracec Apr 3 '20 at 5:14
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In the HSA systems I have used, the pay-me-back process required me to provide a PDF of the insurance EOB. The EOB showed what I was supposed to pay for that service/visit/prescription after taking into account the negotiated rate and the amount paid from the policy.

That information should be enough to meet any investigation by the IRS.

The pay-my-provider process didn't require an EOB because the money was being transferred to the provider, and not going though my bank account. This level of documentation doesn't prevent me from overpaying the doctor and getting the rebate as cash, but they could also ask the doctor for their records if the funds were large enough.

I have not been required to add any documentation to the annual tax forms.

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