<p>Color me stupid. I just found out today that even though D can be on my health insurance, I cannot take a distribution from my HSA to pay for any of her health care expenses. I can’t claim her on my taxes … she was only in school 4 months, and she became a resident of another state in June … from what I can tell, even though I did support her more than 50% for the year, I can’t claim her. Which brings me to the HSA issue. While the IRS was kind enough to allow FSA and HRA distributions for a child who is not a dependent, they weren’t so kind as to extend this to HSA distributions. I have taken about $400 in distributions to pay for her health care this year.</p>
<p>So here is the question: What should I do? I read that some HSA administrators will allow a return of distributions as long as they were taken due to an honest error (I would think this qualifies …). On the other hand, I have more than the $400 in qualified health care costs for other family members. I could document the un-reimbursed expenses, and if we get audited, I could show that while the distributions were in error we have more than that amount in qualified but unreimbursed health care expenses. Not sure that would fly, though.</p>
<p>I am hoping to get some good CC advice. Thanks in advance! :)</p>
<p>The company that manages our HSA takes care of auditing distributions. This is a mixed blessing. It means all distributions are vetted for tax purposes, which is good. But there’s a lot of paperwork on our side since we’re required to provide audit-quality documentation … and you never know which 20% of medical expenditures they’ll want documentation for.</p>
<p>As for your situation, if it was me I’d simply have available records showing WAY more eligible expenses than you claimed.</p>
<p>That is what I was leaning toward. I have receipts for expenses I did not submit for reimbursement totaling a couple hundred more than my D’s distributions that I will keep on file … just in case of an audit.</p>
<p>I recently started working in benefits consulting, and that is how I discovered my mistake. More and more companies are moving to HSA’s, and more & more young adults are being kept on their parents’ health insurance even after they are no longer dependents for tax purposes. I am very disappointed that my H’s employer did not point this out in open enrollment materials. I will definitely remember to bring it up to my clients as an important issue to raise with their employees!</p>
<p>kelsmom - If it were me, I wouldn’t see the need to NOT take deductions for your other eligible expenses - why eat the tax benefits on the “couple hundred more” in expenses that you have? Even in case of an audit, I doubt they’d look that closely at the <em>timing</em> of the distributions during the year, especially when we’re only talking the taxes on $400 here (if it were thousands of dollars, then maybe I’d worry.)</p>
<p>It sounds like your situation is something like this - you took $400 out early in the year to cover non-eligible-daughter’s expenses (before you realized they were non-eligible). Later in the year, or spread through the year, you had $600+ of eligible expenses for other family members that you have not yet reimbursed yourself for from the HSA. One option (if your employer allowed it) would be to put the $400 back in, then take $600+ back out – but to me that seems nonsensical, because I really don’t think the IRS would care that you had the use of a measly $400 for a few months earlier than you “should” have. The law even says that in the case of an “honest error” where you wanted to put the erroneously-withdrawn-funds back INTO the account, you have until April 15 of the following year to do so without penalty – this says to me that they’re really not concerned with you having the use of the money for a few extra months more than you should have.</p>
<p>If you DO decide to hold off on reimbursing yourself for the extra $200+, remember that HSAs do NOT have the use-it-or-lose-it feature of FSAs. You can take a distribution for those expenses in ANY subsequent year (save the receipts) you choose, as long as the expenses were incurred after the HSA was opened (and, of course, as long as the expenses were not reimbursed by another source or taken as an itemized deduction on your tax return).</p>
<p>Re post #5: the problem is that the HSA cannot be used for the expenses of an adult child who is no longer a dependent for tax purposes. If you provide financial support to your daughter and she is in college 5+ months of the year then she is probably your dependent – no problem. </p>
<p>I had the same issue as Kelsmom when my daughter dropped to part-time status for her final semester, and then got a full time job immediately upon graduation – she clearly could not be claimed as a dependent. Unfortunately, my d. had a somewhat larger ($3000+) medical expense that I picked up that year. Unlike Kelsmom, I did know the limitations-- so I knew at the outset that I would not be able to use my HSA. (Also, unlike Kelsmom, I was not providing 50% or anything near that for my daughter that last year.)</p>
<p>The rules governing HSA expenditures predate the rules allowing non-dependent, college grads to remain on their parents’ health plans to age 26 – so there is a mismatch. On the other hand… my daughter NEVER was on my health plan – as a single, self-employed parent it was always less expensive for me to have my kids on individual plans – but the HSA rules did allow me to use the money from my HSA to pay for dependent medical care costs. That’s probably why I was very much aware of the relation to tax status.</p>
<p>I’d add that I do think it is ok to put money back into an HSA without penalty when withdrawn in error. Especially with graduating college seniors – or students who leave schools for other reasons – it is very possible that the dependency status of a young adult may not be accurately known at the time the money is withdrawn. As I am self-employed I don’t have anyone auditing my HSA, but I always use checks or an HSA debit card to directly pay for health-related expenses rather than reimburse myself for out-of-pocket. So I think that if I had been in Kelsmom’s situation - if I had used HSA funds insetead of CareCredit.com to pay for my d’s expenses that year – I would have opted to fill out whatever paperwork was needed to replace the funds. My HSA dollars are earning better interest than my savings, and at my age all of my HSA & IRA money is going to be available to me within a couple of years anyway – though I figure that the HSA money should stay where it is at least until I am old enough for Medicare. I’m sure that sooner or later I will need it for my own medical expenses.</p>
<p>calmom: thank you so much for that explanation…would never have known…</p>
<p>So, when she graduates, gets a job etc, she can still be on our insurance plan, but we can’t use the HSA for medical expenses; they will then be considered ineligible…</p>
<p>got it…also a self-employed plan without an audit…</p>
<p>Next question though…if the HSA is used to fulfill individual deductibles with Horizon, does that mean that we have to pay HER indiv deductibles out of pocket rather than through the HSA?</p>
<p>Interesting thread as I have been wondering about this. We also have an HSA. My daughter will be graduating next year and getting married. She will still be on our insurance I think for a while I think. I had been trying to figure out the situation with the HSA and whether I could make contributions to it. It is just her and I (Dad is retired and on Medicare + supplement, son has his own). My understanding is that though I will have the family plan, I can’t contribute the full amount to the HSA if she will not be our dependent, only the individual amount plus the extra cause I’m old. Is that correct?</p>
<p>They need to catch up the HSA rules to the rules for non dependent kids being able to stay on the insurance.</p>
<p>rodney, that is correct. Her deductibles go toward your family max, but you cannot pay them with HSA distributions. </p>
<p>swimcatsmom, you can contribute $6150 for a “family.” You & your H make up a family on your own, so you can contribute the $6150 (plus your catch-up).</p>
<p>Oops - didn’t read swimcatmom’s post correctly. Your H wouldn’t count, as he is not on your medical plan. However, it appears that your D would count … you can fund the HSA for family if you have a family member in addition to yourself on your insurance. You can’t use the HSA to pay for her … but you CAN use your HSA to pay for your H’s Medicare: “Can I fund my account at the family level if I have single coverage?
No, if you have single coverage you are limited to the individual HSA contribution limit. You may use your HSA funds to pay for the qualified medical expenses of family members (see Distributions, question 6) however, the amount you may contribute to your HSA is limited by the level of your insurance coverage” (from this link: [Frequently</a> Asked Questions | HSA Resources](<a href=“http://www.hsaresources.com/faq/#contributions-04]Frequently”>http://www.hsaresources.com/faq/#contributions-04)).</p>
<p>Thanks so much for the information on this thread - I never would have known and would have inadvertently used funds from our newly-formed HSA to pay expenses for my DD, who while still a student at age 24, is no longer a dependent since she has fellowship funds sufficient to pay her living expenses.
There is so much I don’t know about HSAs - is there an HSA for Dummies book/article out there anywhere?</p>