Other Tax Questions
Questions and comments on other topics covered in Fairmark.com, such as UTMA accounts, and any tax questions that don't fit our other categories.
Itemizing medical expenses when HSA acct is active
Posted by: rookie, April 5, 2017 05:46AM
I have a HSA account through work and contributed a few hundred dollars less than the max of $6750 for tax year 2016. Only took distributions of about $500 to pay for some prescriptions using the debit card associated with the HSA account.

Later in the year, we had some medical expenses (that exceed 10% of my AGI) that were paid out-of-pocket because we had exceeded lifetime maximum for this treatment category (so no insurance reimbursements). I have not taken any distributions from the HSA for these expenses.

Questions:

1. Can I itemize these medical expenses in Sch-A?
2. When calculating the amount to be deducted in Sch-A, should the HSA balance be deducted first (before figuring out if the expenses exceed 10% of AGI)?

Thank you.

Re: Itemizing medical expenses when HSA acct is active
Posted by: Art, April 5, 2017 01:17PM
On schedule A Line 1, include only allowed, out of pocket, unreimbursed medical/dental expenses. So expenses paid by your HSA should not be included.

Re: Itemizing medical expenses when HSA acct is active
Posted by: kaneohe, April 5, 2017 01:23PM
My impression is that you can use unreimbursed expenses to support HSA withdrawals or the sch A medical....you cannot use the same expense to support both.

In your case, the $500 Rx supports the HSA withdrawal that you need to report on F8889.

All other unreimbursed medical expenses (including allowable insurance premiums) can be used to support your Sch A medical deductions (which includes the 10% of AGI non-deductible threshold) as if you had no HSA.
Not clear what HSA balance has to do w/ this......perhaps you meant the Rx cost (HSA expense)
which was used for the HSA and so cannot be used for Sch A.


Re: Itemizing medical expenses when HSA acct is active
Posted by: rookie, April 6, 2017 05:17AM
Thanks for your replies.

Let me rephrase the question with some made-up numbers. Have a HSA balance of $6,000 (which was taken out of paycheck pre-tax). Unreimbursed medical expenses are $10,000. These expenses are eligible for taking a HSA distribution, but I choose not to take a distribution and leave HSA balance untouched. If the entire $10,000 is deducted in Sch A (ignoring the 10% AGI rule to keep things simpler), I am getting an effective tax deduction of $16,000 for this year.

One could argue this is not allowed and I should have emptied the HSA balance first to reimburse myself and only deducted $4000 in Sch A.

Which of the above two interpretations is correct per IRS rules?


Re: Itemizing medical expenses when HSA acct is active
Posted by: kaneohe, April 6, 2017 05:59AM
You are ok to do both........take the HSA deduction, not use the HSA funds for medical expenses, and then take the medical deduction for unreimbursed medical expenses.The main rule then is not to double-dip:
don't use the same expenses for HSA withdrawals and the medical deduction.

[www.bogleheads.org]
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Re: Itemizing medical expenses when HSA acct is active
Posted by: triad, April 6, 2017 02:55PM
That 10% haircut before any of the money counts on schedule A is a rule that means most people never see a benefit from itemizing medical expenses.

You get to run the numbers and decide. Just be sure to mark the bills as having been "used" on the schedule A so you don't accidentally reimburse yourself from the HSA later. (The law on the HSA is unusual in that you can reimburse yourself for 2016 expenses in 2017, 2018, etc. The only requirement is that the expense had to be after you opened the account AND not claimed/reimbursed elsewhere.)

Re: Itemizing medical expenses when HSA acct is active
Posted by: kaneohe, April 6, 2017 03:21PM
and some food for thought.............if you're going to use the HSA as a savings account and take medical deductions instead, consider what will happen ifyou later take an HSA withdrawal and IRS asks for you to prove that you didn't previously have some expense reimbursed or used on Sch A previously. That might mean decades of old tax returns, insurance reimbursement statements that you'll have to haul out and search through, receipts that you will have to mark as triad suggests and hope that your receipts haven't faded. Plan accordingly.

Re: Itemizing medical expenses when HSA acct is active
Posted by: triad, April 6, 2017 07:11PM
I photocopy critical receipts immediately.

Sales slips fade so fast.

Re: Itemizing medical expenses when HSA acct is active
Posted by: rookie, April 7, 2017 06:13AM
Thanks for the info.

HSA account comes with a debit card that I use only to pay insurance deductibles and copays directly to providers. This expense I am thinking about using Sch-A was all of out-of-pocket and did not involve insurance. So I will be careful not to claim it twice.

Thanks for pointing out the paperwork I need to keep if IRS audits at a later date.



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