Always keep your receipts! Saving your receipts for any and all qualified medical expenses means you'll be ready for a potential IRS audit.
20% penalty
The IRS imposes a 20% penalty on any distribution for a non-qualified medical expense. To protect yourself in case of an IRS audit, it's a best practice to keep a receipt for all qualified medical expenses.
IRS definition
"You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. If you receive distributions for other reasons, the amount you withdraw will be subject to income tax and may be subject to an additional 20% tax."
IRS audit
In case of an IRS audit, they want to know that:
The distribution was used to pay for or reimburse you for a qualified expense.
You didn’t get reimbursed for that same expense from somewhere else.
The expense was not part of an itemized deduction on any tax return.
I lost my receipt. What are my options?
You can:
Request a copy of your receipt. Reach out to your doctor’s office, medical facility, or merchant to request a copy of your receipt. Most medical facilities have the ability to generate historical receipts for exactly this purpose. We recommend trying this route first.
Correct the undocumented expense. If you are unable to validate a historical transaction with a receipt, you can correct the withdrawal to avoid any penalties by depositing the amount back into your HSA.
Making a correction (option B)
Part 1: Recategorize the undocumented expense.
In your Health Wallet, go to the transactions list.
Select the undocumented expense.
Categorize your expense as an Unqualified Expense.
Part 2: Make a deposit.
In your Health Wallet, select Deposit.
Select Bank Transfer.
Note: If you don't have a linked bank account, you will be prompted to link one.
Deposit the same amount of the unqualified expense.
Mark the deposit as a Correction.
Select Review & Deposit, then Deposit.
If you choose to keep the expense "as is," you risk being penalized in an audit.