This is very important: keeping receipts of your Health Savings Account (HSA) spending is an IRS requirement. Many people don’t realize this when they sign up for an HSA. Essentially, any money that comes out of your HSA and is coded as a distribution by your custodian, must have a receipt showing the distribution was an eligible medical expense. The only exception is when a distribution is rolled over to another HSA and you must account for this on your tax return.
Now that we’ve made it clear you must have a receipt (and we mean must), what are the details of record keeping? The IRS has not issued an official notice regarding record keeping with an HSA besides this:
“You must keep records sufficient to show that:
- The distributions were exclusively to pay or reimburse qualified medical expenses,
- The qualified medical expenses had not been previously paid or reimbursed from another source, and
- The medical expenses had not been taken as an itemized deduction in any year.
Do not send these records with your tax return. Keep them with your tax records.”
With that said, there are some general rules about what is required of a receipt that supports a tax deduction.
Rules On What The Receipt Must Contain:
IF payment is by… THEN the statement must show the…
Date the check amount was posted to the account
by the financial institution
Debit or credit card
Electronic funds transfer
Date the transfer was posted to the account
by the financial institution
Rules On How Long To Maintain The Receipt:
Generally, it’s a good idea to hold on to your receipts for tax purposes. If you are storing them electronically, there is no reason really to get rid of them. To be more specific though, these are the IRS rules on how long records must be kept:
IF you… THEN the period is…
Owe additional tax and (2), (3), and (4) do not apply to you 3 years
Do not report income that you should and it is more than
25% of the gross income shown on your return 6 years
File a fraudulent return No limit
Do not file a return No limit
File a claim for credit or refund after you filed your return The later of 3
years or 2 years
after tax was
File a claim for a loss from worthless securities 7 years
Are Electronic Records Sufficient For HSA Distributions?
The short answer is yes and the specific text on this is derived from the general rules about record keeping for taxes. Again, the IRS has not issued specific rules on Health Savings Account electronic record keeping but if you want to read their jargon for keeping records you can review pg.14 of this publication
HSA Receipt Summary: It’s really important that you keep receipts for amounts you spend on eligible medical expenses. Overall, the IRS considers spending from an HSA to be equivalent to a tax deduction and has not provided guidelines beyond the general rules given for all tax deductions. If you want to avoid pain with an IRS audit, follow the above guidelines.