Author Topic: 1099-SA for HSA maintenance fee  (Read 566 times)

less4success

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1099-SA for HSA maintenance fee
« on: January 31, 2019, 04:48:08 PM »
I have an HSA that I'm NOT using for current medical expenses, and I'm instead treating the account as another tax-sheltered retirement account (and possibly a medical emergency fund). My HSA provider charges a monthly fee (and yes, I'm thinking about switching to Fidelity this year :).

To my surprise, I received a 2018 1099-SA form from the provider for a distribution that is exactly equal to the maintenance fees I paid in 2018 with distribution code 1 (normal distribution/no other code applies).

I thought the maintenance fee would be deducted from my account and would not count as a taxable distribution.

Is it expected for HSA maintenance fees to be treated as taxable HSA distributions (i.e. you have to pay income tax plus 20% penalty)?

The IRS instructions didn't address the topic of maintenance/administrative fees as far as I could tell:
https://www.irs.gov/instructions/i1099sa

Thanks!
« Last Edit: January 31, 2019, 05:07:36 PM by less4success »

less4success

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Re: 1099-SA for HSA maintenance fee
« Reply #1 on: January 31, 2019, 04:50:53 PM »
Just ran across this (it's for 2017 returns--but I haven't found anything similar for 2018 returns yet):
https://www.irs.gov/publications/p969#en_US_2015_publink1000204081

Quote
HSA administration and maintenance fees withdrawn by the trustee arenít reported as distributions from the HSA.

Can anyone comment on if this sounds right and whether or not this is an authoritative source?
« Last Edit: January 31, 2019, 04:52:38 PM by less4success »

less4success

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Re: 1099-SA for HSA maintenance fee
« Reply #2 on: January 31, 2019, 05:05:56 PM »
One last thought: I'm starting to suspect that the "administration" (e.g. web site, investment infrastructure) is performed by a company that is separate from my HSA trustee. The form I got is from my HSA trustee, and I'm thinking that they might not know why the money was taken out of my account at all (in which case the tax form would make sense, at least from their perspective--and might even be 100% correct...). If this is accurate, then I really need to move this account over to Fidelity ASAP...

walkwalkwalk

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Re: 1099-SA for HSA maintenance fee
« Reply #3 on: February 01, 2019, 08:54:32 AM »
That doesn't sound normal, usually the fees come out of the account itself and is not treated as a distribution. And yes, Fidelity sounds like it would work for you since you are treated it as a retirement account.

fi-me-to-the-moon

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Re: 1099-SA for HSA maintenance fee
« Reply #4 on: February 02, 2019, 02:16:15 PM »
Your provider should not be reporting administration fees as distributions.

https://www.irs.gov/pub/irs-pdf/p969.pdf
Quote
HSA administration and maintenance fees withdrawn by the trustee arenít reported as distributions from the HSA.

https://www.irs.gov/irb/2004-33_IRB
Quote
Q-69. If administration and account maintenance fees (e.g., flat administrative fees) are withdrawn from the HSA, are the withdrawn amounts treated as taxable distributions to the account beneficiary?

A-69. No. Amounts withdrawn from an HSA for administration and account maintenance fees will not be treated as a taxable distribution and will not be included in the account beneficiaryís gross income.

less4success

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Re: 1099-SA for HSA maintenance fee
« Reply #5 on: February 07, 2019, 11:15:53 AM »
Thanks (esp. for the second link)!

I'm still waiting for an official response (and ideally a corrected 1099-SA), but after getting bounced around a few times, everyone I talked to at the various companies involved (insurer, bank, administrator) agreed that the maintenance fee shouldn't be reported as a distribution.

less4success

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Re: 1099-SA for HSA maintenance fee
« Reply #6 on: February 19, 2019, 11:48:32 AM »
Surprise! I received a voicemail from the HSA administrator (note: this is a different entity from the trustee/bank) indicating that my support ticket had been closed (with no further details).

After calling in, they confirmed that since the fees are deducted by a separate entity and not the trustee/bank, their fees are in fact taxable distributions and I'm on the hook for income tax plus a 20% penalty.

I'm going to get the transfer to Fidelity started later today...

wbranch

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Re: 1099-SA for HSA maintenance fee
« Reply #7 on: February 19, 2019, 12:12:47 PM »
Wow - what a pain and terrible setup for a HSA. Have you had any health care expenses that you have not pulled $$ out for? If total fees were $50 and I had at least $50 of healthcare expenses that were not put through the HSA yet, I would just count them towards that. Maybe that wouldn't be 100% right, but that sort of setup defeats the whole purpose of the plan.

less4success

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Re: 1099-SA for HSA maintenance fee
« Reply #8 on: February 19, 2019, 03:41:42 PM »
Good point, wbranch. I had considered just claiming I used the funds for qualified expenses, but I decided I didn't want to bother with record keeping over a $3 tax penalty (I'm planning on using the HSA as a retirement/healthcare emergency fund, and haven't really started keeping invoices/receipts in earnest yet).

Lesson learned: move your HSA to Fidelity (or at least somewhere with fees that DON'T incur tax penalties!).

wbranch

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Re: 1099-SA for HSA maintenance fee
« Reply #9 on: February 19, 2019, 07:33:44 PM »
I guess at $3 I might just pay it as well. If it was over $10 I might work a little harder to figure something out.