How Long Do You Need to Keep HSA Receipts?

A Health Savings Account (HSA) offers an opportunity to save and pay for qualified medical expenses with tax advantages. Contributions to an HSA are typically tax-deductible, earnings grow tax-free, and distributions for eligible medical costs are also tax-free. To preserve these benefits, maintaining meticulous records of all medical expenses and HSA distributions is important for tax compliance.

Standard Retention Period for HSA Records

Individuals should retain HSA receipts and supporting documentation for a period matching the Internal Revenue Service (IRS) statute of limitations for tax returns. This period is typically three years from the date the tax return was filed or the due date of the return, whichever is later. For instance, if a tax return was filed on April 15, 2025, the records should be kept until at least April 15, 2028.

It is advisable to keep HSA records for longer than the standard three years. If a significant omission of income, exceeding 25% of gross income, occurs on a tax return, the statute of limitations extends to six years. If a fraudulent return is filed or no return is filed, there is no time limit for IRS action, and indefinite retention may be advisable.

Required Documentation for HSA Distributions

To substantiate HSA distributions as qualified medical expenses, specific documentation is necessary. This includes itemized receipts from healthcare providers, pharmacies, or medical supply stores. Each receipt should clearly state the date of service, a detailed description of the service or item, the amount paid, and the name of the provider or merchant.

While insurance Explanation of Benefits (EOBs) can be helpful for understanding services received and amounts billed, they are not sufficient on their own. EOBs often do not confirm actual payment by the individual or the amount paid out-of-pocket, so payment receipts are indispensable. It is also necessary to prove that the expense was not reimbursed by insurance or other sources.

Consequences of Inadequate HSA Record-Keeping

Failing to maintain sufficient documentation for HSA distributions can lead to negative outcomes during an IRS audit. If an individual cannot provide proof that a distribution was for a qualified medical expense, the IRS may deem that distribution as taxable income. This means the amount withdrawn would be added to the account holder’s gross income for that tax year.

Additionally, non-qualified distributions incur a 20% penalty on the amount withdrawn if the account holder is under age 65 and not disabled. For example, a $500 non-qualified distribution would result in $100 in penalties, plus the standard income tax. The burden of proof rests with the HSA account holder to demonstrate that all distributions were for eligible medical expenses.

Methods for Maintaining HSA Records

Organization and storage of HSA receipts and documentation are important for compliance and ease of access. Both physical and digital storage options offer solutions. For physical records, a dedicated folder or filing system, organized by year or expense type, can help keep paper receipts in order.

Digital methods, such as scanning documents to create electronic copies, offer accessibility and reduce the risk of physical damage or loss. Cloud storage services or specialized HSA management applications provide secure platforms for storing these records. Consistency in regularly updating records and creating backups for digital files is important to ensure all information is readily available if needed for an audit or future reimbursement.