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Last year, I got a nasty case of food poisoning. I was so violently ill I literally couldn't think straight. The only thing open was the emergency room so that's where my family took me. They treated me and after a month I had recovered. The insurance said it wasn't an emergency (and they literally said I should've expected food poisoning when I go to a restaurant) so they refused to cover any of the $8000 bill. I appealed, but insurance dragged their feet. Thinking they were going to play games and then deny the appeal, I made a claim against the retirement health savings account I have with ICMA-RC (it's like an HSA in that you can put in pre-tax earnings but otherwise it's apparently different according to them). I no longer work at the employer who sponsored the plan so I can make claims against the account. The claim was covered and I got reimbursed. A few weeks after that, insurance saw reason and paid also.

The issue now is, does the money from ICMA-RC count as regular income or is it something else? I have a tax professional prepare my taxes but they can't or won't commit one way or the other.

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    Sounds like you need a new tax professional if they won't figure it out and you have to rely on friendly internet strangers! – Nosjack Mar 24 at 20:21
  • Needless to say @Nosjack, this is also a work in progress! – S M Mar 24 at 20:24
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    If this were an HSA, there is a procedure for putting money back in the HSA (as this is not uncommon). Can you get more information for what kind of plan this actually is? – Joe Mar 24 at 21:20
  • @Joe not really... I've talked to a dozen different people there and I don't think they even know. They keep saying it's something specific to ICMA-RC but there are provisions made by the IRS for it and they insist it's not an HSA. When I started with my employer at the time, participation in this ICMA-RC thing was not optional. When I start asking specific questions, they get more and more vague. If I didn't know the organization already (it's totally legit), I'd think it was a total scam. – S M Mar 24 at 21:25
  • Can you say the name of the plan? Is it an 401-h Retiree Health Account? Or is it their "VantageCare Retirement Health Savings program"? Or something else? – Joe Mar 24 at 21:28
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Based on this page from a public employer, I believe that this is an HRA (Health Reimbursement Arrangement). HRAs are described in IRS Publication 969.

You can’t be reimbursed twice for a medical expense by tax-exempt money. Since insurance ultimately paid the expense, somehow this must be accounted for.

If it was an HSA, I would tell you to do a mistaken distribution reimbursement. I have no experience with HRAs. I do see the following in Pub 969:

If any distribution is, or can be, made for other than the reimbursement of qualified medical expenses, any distribution (including reimbursement of qualified medical expenses) made in the current tax year is included in gross income.

However, I don’t know what the mechanism for doing this is. This probably should have been straightened out immediately after the insurance issued their reimbursement and you still worked for the employer. I think you’ll need to talk to either ICMA-RC, your old employer, or a new tax professional.

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  • I was forced to contribute to the fund, and the employer matched, so this cannot be an HRA. When I left, it was literally two days short of the vesting period (5 years), so the employer took back all of their contributions plus interest. All that's left is my pre-tax contributions, and they've sat there for 10 years. Having said all that, because it happened on a pre-tax basis, that probably wouldn't make a difference. I guess regardless of the type of account, because I eventually did get the money it would count as income. – S M Mar 26 at 20:44
  • @SM I don't know what it is, then. That was my best guess. I guess you'll need to ask someone at ICMA-RC and ask them exactly what type of tax-advantaged account this is. – Ben Miller - Remember Monica Mar 26 at 22:22
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    I've already got a query out to them :) As soon as I hear from them I'll post what they said here. – S M Mar 26 at 22:23
  • Here is ICMA-RC's response: "Our records indicate ICMA-RC manages your Retirement Health Savings (RHS) account. Tax Form 1099-R, associated with your retirement account, will only be generated in the event a distribution from your account was subject to taxation. Your account reflects that no potentially taxable withdrawals have been made. Therefore, tax Form 1099-R will not be issued." I told them exactly what I've mentioned above, but it doesn't seem right... Almost like they really didn't pay attention to what I had written. – S M Mar 31 at 2:38

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