Yesterday I bought a heating pad at Walgreens and used my HSA debit card. It was a HSA Over-the-counter Eligible Expense. However, after the purchase I realized it wasn't what I actually needed. So I took the heating pad back to Walgreens to return it and the cashier gave me cash in the amount of my purchase.

Now I don't know what I need to do since I essentially just received around $40 dollars tax free. Do I report it on my taxes, send it back in to my HSA account, pocket it and act like it never happened? Any advice is greatly appreciated!

  • I see how these questions are similar but I wouldn't consider them to be a duplicate. Especially when comparing the answers. – wharkins3 Jun 16 '17 at 12:18
  • Can you explain in what way you think your question is different? – Ben Miller - Remember Monica Jun 16 '17 at 12:49
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    I disagree with the answer in this case. If you think you will spend $40 from your HSA between now and Dec 31, I wouldn't bother with filing paperwork and undoing the distribution. Pay for the next $40 in eligible expenses with your personal funds, and keep the receipt together with those from the purchase and return of the heating pad. It's the identical result and saves a lot of headache. But if you don't have any eligible expenses by Dec 31, then do the reversal. – TTT Jun 16 '17 at 15:36

You can return the money to your HSA in some cases, you'll have to talk to your HSA administrator about how to go about it, but the IRS allows you to return errant HSA distributions:

A-37. If there is clear and convincing evidence that amounts were distributed from an HSA because of a mistake of fact due to reasonable cause, the account beneficiary may repay the mistaken distribution no later than April 15 following the first year the account beneficiary knew or should have known the distribution was a mistake. Under these circumstances, the distribution is not included in gross income under section 223(f)(2), or subject to the 10 percent additional tax under section 223(f)(4), and the repayment is not subject to the excise tax on excess contributions under section 4973(a)(5). But see Q&A 76 on the trustee’s or custodian’s obligation to accept a return of mistaken distributions.

That is out-dated, as the penalty is now 20%, but the rest should still be accurate.

Source: Health Savings Accounts—Additional Qs&As

If you spent money on something that clearly wasn't a qualified expense (pizza?) you'd owe a 20% penalty, follow the instructions on Form 8889 for that.

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