1

The "nut" of the question

When claiming HSA reimbursement for past medical expenses incurred many years past, what is the test for being able to show that the expense was not previously reimbursed by some other means nor claimed as a tax deduction?

Situation

This year, for the first time, I want to get reimbursed for medical expenses in previous years. There are some expenses I paid with cash, some with checks, and some with credit cards. Some involved insurance, some did not. Consequently, the trail for any one expense might be:

  • as little as a receipt + an entry in a spread sheet, or
  • as much as a money receipt + entry on a credit card or bank statement + detailed providers receipt showing insurance share vs. my share.

In all cases, I can show that I never claimed a medical expense deduction on my taxes.

Examples:

  • Flu shot: cash + store receipt + entry in a spread sheet
  • Dentist visit: credit card receipt + invoice showing what I owed vs. paid (no insurance involved) + entry in a money-tracking app
  • Doctor's visit: cancelled check + doctor's master bill with medical codes + doctor's invoice showing insurance share vs. my share

Update to the situation. I am self-employed, so any trail is 100% in my corner. I mention this because Wesley Marshall (second answer, below) provided a useful tip for the employed.

IRS Bulletin

My question--what is the test for being able to show that the expense was not previously reimbursed by some other means nor claimed as a tax deduction? (see top of page)--arises from a 2004 bulletin from the IRS, QnA item #39 (key phrases in my bold-italic)

Q-39. When must a distribution from an HSA be taken to pay or reimburse, on a tax-free basis, qualified medical expenses incurred in the current year?

A-39. An account beneficiary may defer to later taxable years distributions from HSAs to pay or reimburse qualified medical expenses incurred in the current year as long as the expenses were incurred after the HSA was established. Similarly, a distribution from an HSA in the current year can be used to pay or reimburse expenses incurred in any prior year as long as the expenses were incurred after the HSA was established. Thus, there is no time limit on when the distribution must occur. However, to be excludable from the account beneficiary’s gross income, he or she must keep records sufficient to later show that the distributions were exclusively to pay or reimburse qualified medical expenses, that the qualified medical expenses have not been previously paid or reimbursed from another source and that the medical expenses have not been taken as an itemized deduction in any prior taxable year. See Notice 2004-2, Q&A 31 and also Notice 2004-25, for transition relief in calendar year 2004 for reimbursement of medical expenses incurred before opening an HSA.

Example. An eligible individual contributes $1,000 to an HSA in 2004. On December 1, 2004, the individual incurs a $1,500 qualified medical expense and has a balance in his HSA of $1,025. On January 3, 2005, the individual contributes another $1,000 to the HSA, bringing the balance in the HSA to $2,025. In June, 2005, the individual receives a distribution of $1,500 to reimburse him for the $1,500 medical expense incurred in 2004. The individual can show that the $1,500 HSA distribution in 2005 is a reimbursement for a qualified medical expense that has not been previously paid or otherwise reimbursed and has not been taken as an itemized deduction. The distribution is excludable from the account beneficiary’s gross income.

https://www.irs.gov/irb/2004-33_IRB/ar08.html#d0e2270

5

Aside from the fact that probably nobody is ever going to come and ask for that proof unless your amounts get five digits (or you're unlucky), if you never before reimbursed yourself, your old tax declarations would clearly show that.

You can't prove a negative, so the only potential is that you had reimbursements before, and an audit might ask you to prove that the new ones are not duplicates of those. In this case, if you have other receipts / proof for all those other reimbursements, they are obviously not duplicates.

  • and (below) Wesley Marshall) - Both of your answers guided me to a satisfactory solution. I wished stackexchange would let me accept both answers, but I must just one, so I will go with the straightforward logic of "can't prove a negative ..." combined with the fact that the trail of receipts is triangulated. – RJo Sep 5 '17 at 20:08
2

One piece of documentation that might help here is a confirmation of your benefit selections through your employer for each year since the expenses in question were incurred, assuming you have a job with eligibility for benefits. If you can prove which accounts you maintained through your/your spouse's (if applicable) employer(s), then it is relatively simple to go back through the records for those specific accounts and see if a specific expense was ever reimbursed. Obviously, you can't prove through documentation that you didn't have accounts that don't exist.

This seems like it would be more important for the accounts elected by a significant other, since I believe reimbursements from an account in your name would typically be reported to the IRS on your behalf anyway.

Also, keep in mind that the IRS won't care about each line item individually. Their focus will be on whether, for any given snapshot in time, your total reimbursed amount exceeded your total eligible expenses.

  • As noted above for Aganju, I also wanted to mark your reply as the answer but could only have one, so my hand was forced. The logic for the employer trail was sound, but I am self-employed (and have updated my post to show that). The last paragraph of your reply was tangentially helpful because it spurred me to aggregate the trail of receipts at the institution's web site rather than enter every office call (for example, aggregating each year's dental appointments). This was a huge time saver for me. – RJo Sep 5 '17 at 20:03

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