In November 2024, my minor son needed minor surgery. He is covered by my medical plan, and for both 2024 and 2025, we have a High Deductible Health Plan with a Health Savings Account.
Prior to the surgery (in 2024), the surgeon’s office required payment based on their estimate of what the insurance would cover. My wife paid the bill directly from the Health Savings Account, using the associated debit card.
In January 2025, the surgeon’s office sent a refund check, made out to my wife personally, as insurance covered more than expected. The surgeon’s office could not refund the money back to the HSA debit card, nor could it make a payment check out to the HSA account.
The HSA has a “return of mistaken distribution” form. Using that form, in January 2025, we sent in a check for the exact amount of that refund, indicating that it was a distribution from 2024 being returned in 2025.
Subsequently, also in January 2025, we received a 1099-SA from the HSA administrator, showcasing the amount withdrawn from the account in 2024. That 1099-SA seems to include the initial payment amount associated with that surgical procedure (#).
With all this for background, here are the questions:
Should we expect a corrected 1099-SA for 2024?
How do we handle this sequence of events for our 2024 taxes?
Should we expect any implications or additional actions needed for our 2025 taxes?
Thanks in advance.
Regards,
-Chuck
(#) I can’t yet tell for certain if the amount is included due to a change of HSA administrators and only having received a 1099-SA from the new administrator and not yet from the previous administrator. Still, based on the calendar of all relevant events involved and the fact that the money we sent back to the HSA has not yet been re-deposited into the account, it looks very much like the initial payment amount is included in the 1099-SA.
Unfortunately, it seems that medical practices tend to underestimate what insurance will cover, because they would rather give you a refund than bill you for more. In the future, it would be advisable to use another method to pay and then reimburse yourself once the bill is settled.
You mention below that there was a switch in HSA administrators. Is it the current administrator or the previous administrator that had this form? And which administrator had custody of the account when the disbursement was made?
You should wait for the corrected 1099-SA to actually file, and then file with those corrected numbers. That, of course, is the ideal case based on the actions you’ve already taken.
If the HSA administrator doesn’t code the deposit as a return, but rather, as a contribution - despite having filled out the “return of mistaken distribution” form, they won’t issue you a corrected 1099-SA. You will need to take it up with them until they get it correct (delaying your filing more), or, if you have saved receipts from other qualified medical expenses that would cover that amount, you can just let it ride as a contribution - adjusting your 2025 contributions as needed.
Depends on how the HSA administrator(s) actually handle the situation, and if you are willing/able to wait to get the corrected 1099-SA.
If you have to wait past April 15 to get this resolved, make sure that you have paid enough to the IRS to avoid an underpayment penalty by
April 15.
Live and learn… Also, with a HDHP, the “up front” bills can be kind of large, while contributing to an HSA means there’s less cash available outside of the HSA to pay a fairly large medical bill…
The new administrator for both those questions.
Thx. I’ll wait for either a few weeks to pass or for the check to deposit before contacting them.
Thanks. Appreciate it.
Good to know. Appreciate the heads up.
I should be ok on that front based on 2024 withholdings and my best current estimate of 2024 AGI, but I likely won’t know for certain until early April. Good to keep in mind.
You could split the payment and put part of it, say 60% - 75%, on the debit card from the HSA. Then you would just have to find another payment option for the other 25% - 40%.
Oh, that’s good. I was concerned that you were going to have to coordinate across the 2 administrators. That probably would have been an even longer process.
The deposit has been credited to my HSA correctly as a “prior year return of mistaken distribution.” I have not (yet) received an amended 1099-SA.
If I do receive an amended 1099-SA, it seems straightforward: use the amended form to file my 2024 taxes.
If I do not receive such a form, I am less clear on what the appropriate course of action would be with respect to my 2024 — and potentially 2025 — taxes, and I would appreciate any available guidance.
As the trustee or custodian, you do not have to allow beneficiaries to return a mistaken distribution to the HSA. However, if you do allow the return of the mistaken distribution, you may rely on the account beneficiary’s statement that the distribution was in fact a mistake. See Notice 2004-50, 2004-33 I.R.B. 196, Q&A 76, available at IRS.gov/irb/2004-33_IRB#NOT-2004-50. Do not report the mistaken distribution on Form 1099-SA. Correct any filed Form 1099-SA with the IRS and the account beneficiary as soon as you become aware of the error. See Corrected Returns on Paper Forms in the current General Instructions for Certain Information Returns for more information.
If they don’t plan on issuing a correction, then file as if you had received the corrected form, and keep documentation showing why there is a difference between the form that you got and what you filed.