142 said...
Interesting that you could use a US HSA-associated card for a Canadian pharmacy. Mine has blocks down to the product level that were updated with the new rules this year. It explicity forbids any foreign transactions.
My HSA is a Mastercard and there are no blocks on the card, I'm not even sure how that could be done. There are specific rules for being able to withdraw funds from your HSA tax-free and penalty-free. I can use my HSA Mastercard to buy anything I want. However, if I don't use the funds for qualified medical expenses, the withdrawal is subject to income tax and a penalty. Buying drugs from another country is not a qualified medical expense so technically I am subject to income tax and penalty on my purchase. The issuer of my card and HSA custodian do not monitor purchases for compliance. The tax and penalty are self-reported on my income tax return.
142 said...
Keep good records for HSA expenses. I have heard of folks in my plan who were called by the IRS to provide prescription/receipt-level details to support their withdrawals.
Yes, you do need to keep receipts. If the IRS sends you a letter requesting proof of using the funds for medical expenses, you need to produce them or you'll get hit with income tax and penalty.
142 said...
remember that you can withdraw funds from an HSA to match valid expenses (just do it once at the end of the year with copies of receipts just to cover yourself)
You don't need to wait until the end of the year to reimburse yourself. You can do it anytime. You don't even need to reimburse yourself in the current year. If you spend more than you have in your HSA in one year, you can build up the account in following years and reimburse yourself for expenses from prior years. The rules are very flexible as long as the funds are used for medical expenses. These rules are set forth in the U.S. tax code and apply to all HSA accounts.