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Health Savings Account Record Keeping: Receipts and HSAs

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…

Cash    

                                       Amount

                                       Payee’s name

                                       Transaction date

Check 

                                       Check number

                                       Amount

                                       Payee’s name

                                       Date the check amount was posted to the account

                                       by the financial institution

Debit or credit card     

                                       Amount charged

                                       Payee’s name

                                       Transaction date

Electronic funds transfer   

                                       Amount transferred

                                       Payee’s name

                                       Date the transfer was posted to the account

                                       by the financial institution

Payroll deduction 

                                       Amount

                                       Payee code

                                       Transaction date

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      

                                                                                                paid.

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.

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