When You Use Your HSA Card Incorrectly

One of the best things about having an HSA is how easy they are to use. You just carry the card around in your wallet and use it to pay for eligible expenses, so it's really not any different from making a normal purchase. That's where people run into trouble — myself included. Here's my story.

Last year, I used my HSA card to pay for a 50-inch smart TV. Here's how it happened and what I did to fix it.

My story begins when I bought some contact lenses online at a large wholesale club, where I usually get my annual eye exam. When I went to pay with my HSA card, I saved the credit card under my account, hoping that next time I bought contacts, I wouldn't have to dig out my HSA card.

A few months later my husband and I were shopping around for a new TV. We found a model we liked on the store's website, so I bought it immediately. I was so excited that I forgot to check my payment settings.

A couple weeks later when I was reviewing my HSA, I noticed a $350 pending transaction. I didn't remember paying a medical bill that high, so I was pretty confused. “Has someone hacked into my account? Did a doctor's office have my HSA card on file and bill me for a visit?”

It wasn't until the payment was posted that I realized what I'd done. I had used my HSA card to buy a TV.

I doubt I'm the first person to use my HSA for a large ineligible purchase. HSA cards look just like regular credit cards, so it's easy to get them mixed up in your wallet or accidentally save them to an online retailer. Honestly, I'm surprised this is the first time it's happened to me.

How to fix HSA card mistakes

Unfortunately, you can't just let mistakes like this slide. You can be charged a 20% penalty if you use your HSA funds to pay for a non-qualified medical expense, which would have been $70 in my case (not to mention traditional income taxes would apply, too).

A simple way to fix this problem is to pay for a qualified medical expense of the same amount with your debit or credit card and keep the receipt. This way the amounts will cancel each other out. (Learn more about how reimbursements work here.)

That's what I did. A week after my mistake, my husband had a physical therapy visit that I used our regular credit card to pay for, which negated my TV transaction.

If you catch the transaction early enough, you might even be able to contact the retailer and ask them to reverse the charge and fill it on a new card. If you bought something in person, you can also return it to the store and then buy it again with a different card. Whichever route you choose, keep thorough records in case the IRS starts asking about a "funny-looking" charge.

As always, please consult a licensed tax professional for appropriate advice given your individual situation.