Dumb Idea Filter: Using HSA card for ineligible charges

August 22, 2014 6:26 AM

What's the worst that will happen to me if I use my HSA card for a non-medical bill? Or a few.

I know this is a dumb idea. But I'm at the tipping point of eviction notice/shutoffs/car repossession. I"m not there yet, but if I can fix it now I am going to save myself so much money and grief and stress that I really can't handle.

I understand that there is a 20% tax in addition to having to report that money as taxable income. I can deal with that. My other option that's being considered is going to get a payday loan, and my tenuous application is impossible without the ridiculous charges.

I know it's a bad idea. I'm just hoping it won't be the worst idea ever. I really can't lose my car, car insurance, or house. FWIW I'd only be charging a few hundred dollars. Which seems a small amount, but when you don't make that much and you're covering a significant other that lost their full time job, it's rough.

Throwaway email is [e-mail]

posted by anonymous to Work & Money (20 answers total)

I would imagine the card would be rejected when you tried to use it, due to the vendor obviously not being medical-related. But if not they'll declare the charge ineligible when it shows up and ask you to pay back the money. Until you do that, they'll suspend the card.

That's what has happened in my experience, anyway. I have never done this on purpose but I've had them ask me to verify charges before due to the pharmacy not putting enough information on the receipt.
posted by something something at 6:31 AM on August 22, 2014

My experience has been the same at CVS. I tried to pay for a prescription and OTC allergy meds and the entire transaction was denied. If I'd thought it through I would have done HSA for Rx and then cash for OTC but I didn't think it through and paid cash for both then applied for reimbursement.

I've never tried it with the daycare debit card and don't have one any more anyway.

Try to reach out for emergency to someone you know, please.
posted by Buttons Bellbottom at 6:31 AM on August 22, 2014

From this Forbes article, if it goes through it sounds like you have to report the non-qualified distribution on your 1040.
posted by mochapickle at 6:33 AM on August 22, 2014

Confirming you will likely be denied. If the charge does go through, someone on the card end will pretty swiftly determine the charge is ineligible and start hounding you for repayment. The time I did this entirely by accident (didn't realize something was non-HSA-chargeable), it was on the order of a couple of weeks and then I started getting the "hey, pay us back ASAP' emails.
posted by Stacey at 6:33 AM on August 22, 2014

If it goes through (which, like, it might go through at CVS but it probably won't work with the electric company), I think they immediately make you pay it back. I've had my HSA card go through at the dentist, then they requested additional information (copies of receipts) and when I wasn't fast enough about getting it back to them, they sent me several bills in quick succession. I don't know what would have happened if I hadn't either given them the receipts or paid the bill.

So short answer: it probably won't work, if it does you'll just get another bill almost immediately.
posted by mskyle at 6:35 AM on August 22, 2014

I suggest you call the companies and ask for extensions or help or anything they can do for right now. If you have an auto loan, which it sounds like you do, call them up and see what extension or help they can provide. Mostly they'll have a department to handle this kind of thing. Seeing as everyone is saying you'll mostly get denied, do everything you can to stay afloat. Try applying for a small loan at a credit union if you only need a couple hundred. Payday loans are something to be extremely wary of and a last resort type thing. Try to get as much help as you can with whatever resources available. Like food pantries or churches and hopefully your loved one is applying for unemployment benefits. Good luck, you can do this.
posted by lunastellasol at 6:45 AM on August 22, 2014 [2 favorites]

Whether or not the card is accepted depends on the merchant code that is sent from the merchant's terminal and which codes your FSA administrator has said allow vs deny to. For example, I have an employee who can't use his card at his therapist's office because his therapist set up the terminal with the "relationship coach" code rather than the "therapist" code.

If the charge does complete you will be responsible for repaying the FSA administrator for the funds and they can use collections to recoup them even though once they do they are placed in your own account.
posted by magnetsphere at 6:47 AM on August 22, 2014

I have an HSA debit card from HSA Bank, division of Webster Bank. I can transfer the money directly (electronically) from my HSA account into my checking account, and that's what I usually do when I need to pay for medical expenses. I'm not so sure that the HSA card would be rejected outright if I tried to use it to buy shoes or books or something. I seem to remember the bank rep saying that they don't check your purchase against a list, or anything like that, but I could be wrong.

Note that when you do your income taxes next year, you will have to report to the IRS that you used the money for non-medical expenses. If you do that, you will be all legit.

By the way, note that there is a difference between a flexible spending account (FSA) and a health savings account (HSA). Again, I could be wrong, but I think that FSA debit cards are more difficult to use (i.e., they have stricter restrictions in place) for non-medical expenses.

One more thing: You might check to see if you can use your card to make direct withdrawals form an ATM machine. I think my card has that ability, although you have to pay a service charge.
posted by alex1965 at 7:12 AM on August 22, 2014 [1 favorite]

Anonymous, whether or not the HSA administrator checks to be sure that the expenses are HSA-eligible varies with the company that is administering the HSA. Call them and ask. Don't be ashamed about this. Yes, you will have to pay the penalty for taking out the HSA money. But that's better than getting a payday loan, so just find out how to do it and go ahead.
posted by medusa at 7:59 AM on August 22, 2014

You could also just go to an ATM and take out cash. My HSA card can also be used at ATMs - I've withdrawn cash with it before (albeit for medical expenses). My administrator - Chase - has never asked me for receipts, although I do save them, just in case.

As far as I know, there is nothing preventing you from using money from an HSA for non-medical expenses so long as you pay the tax penalty. It is your money, after all.

Also: reiterating alex1965's point about FSAs and HSAs. I have an HSA. FSAs are different and, far as I can tell, have more restrictions. But many people confuse the two.
posted by breakin' the law at 7:59 AM on August 22, 2014 [2 favorites]

If the situation is that you don't have enough cash on hand right now, and you don't have another credit card you can use, but you do have income coming up such that you will be able to pay it back, then this isn't the stupidest thing I've ever heard of. You hand the card to the cashier, and assuming it runs through, the insurance checkers see the transaction in a week or so, flag it, and contact you to ask WTF; you then say "oops, gosh, I had no idea I used the wrong card, let me send you a check." And the fees involved are perhaps zero, most likely less than a payday loan. But if you really don't have the money, don't do it this way. Do as above posters have said about taking cash out and paying fees up front.

The chances of this charge standing all the way through the end of the year, and the IRS investigating it and charging you with tax evasion, and big fees, etc, are very minimal; there will be a net that catches your "inadvertent" fraud before that level.
posted by aimedwander at 8:14 AM on August 22, 2014

You don't have to use the HSA card to draw from your HSA account. There are lower-tech ways to get access to those funds. See previous comments for what the potential consequences are to doing this.

You may also consider reducing the amount of your contributions to the HSA account. HSAs are nice, but if you can't pay your regular bills you should consider this.

Another side effect of using your HSA funds is that you wont have those funds available to pay medical expenses with pre-tax dollars, which could impact your taxes.
posted by Billiken at 8:30 AM on August 22, 2014

And by the way, using your HSA funds for non medical expenses isn't a dumb idea. It may just mean you have to put more thought into how to manage your finances. If that was a dumb thing America would be Idiotopia.
posted by Billiken at 8:32 AM on August 22, 2014 [4 favorites]

OK, I looked into this a bit because I have an HSA and I think you are getting a lot of conflicting info here.

This is per Wikipedia, so perhaps take it with a grain of salt, although both articles are well-sourced:

http://en.wikipedia.org/wiki/Health_savings_account
"Withdrawals for non-medical expenses are treated very similarly to those in an individual retirement account (IRA) in that they may provide tax advantages if taken after retirement age, and they incur penalties if taken earlier."

However..."Though many HSA providers offer unrestricted debit cards and even credit cards with their accounts, some voluntarily choose to issue FSA debit cards and impose the same restrictions on their use as those required by the IRS for FSAs and HRAs."
Source here: http://en.wikipedia.org/wiki/FSA_debit_card

It appears that many of the restrictions that people are referring to mostly apply to FSA debit cards, NOT HSA debit cards. However, some HSA debit cards do come with those restrictions, so it really depends on your insurance company/administrator. I'm sure you can find out what your restrictions are, if any. As I've said, I once withdrew cash with mine - it was for a medical expense, but still, how were they going to know where the cash was going? No one ever asked me about it, though I kept the receipts. I'm pretty sure I could buy airline tickets with my HSA debit card if I wanted to, and I wouldn't be committing "fraud" at all so long as I didn't lie about it and paid the tax penalty.

Basically, withdrawing cash from an HSA for a non-medical expense is - as the Wikipedia article states - the same as withdrawing from a 401(k), essentially. People do this all the time. I bet you could even call your HSA provider and have them wire money to your checking account, and as long as you are honest with them about the uses of the money, and pay the penalty come tax time, you will not have done anything fraudulent.
posted by breakin' the law at 8:39 AM on August 22, 2014 [7 favorites]

By the way, I would totally do this before getting a payday loan or anything like that.
posted by breakin' the law at 8:39 AM on August 22, 2014 [2 favorites]

Can't speak to the HSA card issue, but please try to avoid taking out a payday loan if you can. People get very very screwed by payday loans - they get trapped in cycles of debt and they end up much worse off. I know there aren't many other options, but payday is a really bad option.

You could try, as others have suggested, calling your mortgage servicer and whoever holds your auto loan and asking for help. Even racking up credit card debt would be better than a payday loan.

You could also go to a local community bank or credit union and ask if they have any small-dollar loans that are payday alternatives. They may not be able to help you and these loans will still have high interest rates, but it is way better than a payday loan and is worth asking about.
posted by aka burlap at 8:53 AM on August 22, 2014

I have used my HSA card for non-HSA expenses. My HSA bank card does not have any restrictions on it -- I can use it to buy anything anywhere, or to withdraw cash from ATMs. I can even call my HSA bank and they'll send me checks so I can write checks instead of using a card -- this, in fact, is how they recommend I reimburse myself for any eligible medical expenses I may pay for out of my regular bank account. The key thing is to keep your receipts and records so you know how much you've spent on non-medical expenses. When you get your statement from your HSA bank after the beginning of the year, it'll show your disbursements from the account, and you'll need to note on your taxes what portion of those disbursements was for eligible medical expenses. And then you'll pay the penalty on the disbursements that weren't eligible medical expenses. There's no fraud here -- it's your money. It's just money that you have to pay taxes on if you use it for non-medical expenses.

Does the penalty suck? Yes. Does it suck less than taking out a payday loan? Very much, indubitably, yes. If taking an ineligible disbursement from your HSA keeps you from losing your home, car, etc., and you believe you'll be able to cover the penalty when the taxman comes, do it.
posted by devinemissk at 10:43 AM on August 22, 2014 [1 favorite]

Mod note: From the OP:

Hi everyone, anon op here. Thank you for all your advice! Knowing that it's okay to pay my car payment without going to IRS jail is a huge relief. I'm also taking into account the bit about maybe putting less into my hsa account. This thread is resolved now, and thank you all again.

posted by mathowie (staff) at 12:06 PM on August 22, 2014 [1 favorite]

I no longer have an HSA, but when I did, I had a checkbook that I could write checks with. I just 'saved up' my expenses and wrote one big check to myself at the end of the year.

And when - after a large medical expense - I did a huge withdrawal (>$4000) to close it last year, I just walked into the bank and withdrew it as cold, hard cash.

You could do the same thing without the expenses, but understand that about half of what you withdraw will be added to your tax bill next April.

Side note, it came as cash because the trick my dad taught me for getting free cashier's checks - ask for a large withdrawal, and if they offer you a cc, ask innocently, "will there be a charge for that?" - didn't work. They preferred to give me $4k in cash instead of a free cc.
posted by Hatashran at 8:05 PM on August 22, 2014

Will they ask for receipts for non medical expenses?
posted by phoenixpiole at 10:07 AM on February 17, 2015