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HSA Payments & Tracking

How Do You Pay?

Using an HSA is pretty much like using any checking account. Typically, you’ll have a checkbook with about 25 checks, plus a debit card. Some account custodians charge you for the checks (anywhere from $10 to $25) and will charge you for additional check orders as well.

Besides debit cards and checks, other ways to pay include certain types of credit cards issued by the account custodian and stored-value cards in specific dollar amounts. Stored-value cards for HSAs are similar to store gift cards or phone cards. The starting balance is debited every time the card is used, until the amount is used up.

As a practical matter, the amount of money you spend depends on the balance in your account. Although your deposits in the first few years may be small, your accumulated savings can provide a cushion of tax-free dollars over time.

What If You Need Your HSA Money for Something Else?

In the event of severe financial difficulties, money saved in an HSA account may be immediately withdrawn to meet a crisis. All you have to do is write yourself a check. You will have to report this distribution as potentially taxable income, as you would if you “cashed out” your IRA or Keogh. But you don’t have to withdraw the entire amount, just what’s really needed for this important, non-medical need.

Remember, though, that the amount you withdraw for non-medical expenses loses value as soon as you withdraw it — you could forfeit over 30% of the amount in taxes. Plus, whatever’s left in the account will accumulate less interest for the future. Unless you’re facing a true financial crisis, such as a foreclosure or eviction, you’re probably better off leaving the money in your account.

How Do You Keep Track of HSA Spending?

Your HSA custodian is required to report all distributions from your HSA account to the IRS. You get a copy of the report from your custodian vendor at the end of the year. It’s up to you to tell the IRS how much of the distribution total was for qualifying medical expenses, and what part of the total does not qualify.

You must include any unqualified amount in your taxable income for the year (when you file your income taxes). The qualified amount is noted on a special form. You don’t have to file your medical receipts with the IRS, though you should save them, along with copies of your tax forms, in case of an audit.

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