Record Keeping Tips for HSAs

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Modern day healthcare is very difficult to understand. There are lots of options and many different plans you can cobble together. For this blog, we’re focusing on HSAs and the record-keeping requirements around them.

What is an HSA?

An HSA is a Health Savings Account. It is only available if you have a qualifying High Deductible Health Plan (HDHP). It’s essentially an extra employee bank account managed by the employee. The money in that account is earmarked for eligible medical expenses. Contributions can be added by the employee and the employer, they are tax deductible, and the balance can build over time. The HSA goes with the employee in the event of employment termination.

There are some important things to remember when it comes to HSAs.

For example, the IRS requires you to keep receipts of all your Health Savings Account (HSA) spending and too many people do not realize this when they sign up for an HSA.

Any money that comes out of your HSA gets coded as a distribution by the custodian of that HSA and there must be a receipt that shows any charges using this money as an eligible medical expense.

The only exception to the requirement to keep receipts is when the distribution is added to another HSA and you still must account for this roll up in your tax return.

While the IRS has not given any official notice or guidance on record keeping with an HSA, there are a few guidelines that they do note:

“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.”


Given the above, there are still some rules as to what the receipt needs to have on it to support it as a tax deduction.

If the payment was made using cash, the receipt must show:

  • Amount
  • Payee’s Name
  • Transaction Date


If the payment was made using a check, the receipt must show:

  • Check Number
  • Amount
  • Payee’s Name
  • Date the check was posted to the account by the financial institution


If the payment was made using a credit or debit card:

  • Amount charged
  • Payee’s Name
  • Transaction Date


If the payment was made using an Electronic Funds Transfer, the receipt must show:

  • Amount Transferred
  • Payee’s Name
  • Date the transfer was posted to the account by the financial institution


If the payment was made using a Payroll Deduction, the receipt must show:

  • Amount
  • Payee code
  • Transaction Date

How Long Do You Have to Keep the Receipt?

Typically, it is a good idea to hold on to any receipts for your HSA. Paper is okay, but storing them electronically is better. There are some specific rules on how long you need to keep any receipts:

  1. If you own additional taxes and 2,3, and 4 don’t apply to you, keep receipts for three years.
  2. If you do not report income that you should and that income accounts for more the 25% of your reported gross income on your return—keep receipts for six years.
  3. If you file a fraudulent return there’s no limit.
  4. If you do not file a return there’s no limit.
  5. File a claim for a credit or refund after you file your return—keep receipts for three years.
  6. File a claim for a loss from worthless securities—keep receipts for seven years.


Can You Use Electronic Records for HSA Distributions?

The short answer is yes. However, the IRS has not issued official guidance on this; they have made a note on page 14 of this document.

In Summary: You need to keep the receipts for whatever you spend HSA funds on for eligible medical expenses. The IRS considers any spending from HSAs to be equivalent to a tax deduction and requires documentation as such. In general, if you want to avoid any issues with the IRS, keep your receipts.

For help with tax filings or setting up an HSA for your employees, please contact MCK CPAs.