HSA

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skarme312
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Joined: Mon Apr 26, 2021 2:24 pm

HSA

Post by skarme312 »

I use to work in the US for years before moving to Canada. I still have the HSA with nearly 20K in balance. The penalty for early withdrawal is too much so I rather keep the account. Had a few questions regarding this-
1) Does HSA have to be reported on form T1135?
2) Does interest on this account be taxed in Canada as income? 401k interests are not taxed but there is no official rule for HSA.
3) If I use the HSA for qualified medical expenses, will this account as income?
nelsona
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Re: HSA

Post by nelsona »

1. Yes
2. It does not need to be reported.
3. No. And the expenses can still be used on your tax return.
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skarme312
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Joined: Mon Apr 26, 2021 2:24 pm

Re: HSA

Post by skarme312 »

Thanks. Quick follow up on the T1135. It has a section to report income. Do I report the interest on the HSA or enter 0?
nelsona
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Re: HSA

Post by nelsona »

I would report 0
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brianbbc
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Re: HSA

Post by brianbbc »

Assuming >65 years old, Canadian citizen and resident only, worked previously in USA. Have health saving account. What forms needs to be filed to cra and irs for
1. qualified medical distributors
2. Non qualified distributions
3. Qualified medical is not taxable in USA but what about Canada?
4. I’m sure non qualified will be taxable by both but is there a way to avoid double taxation if it exists in this case?
Assume no other taxable event takes place in the USA side
Thanks
nelsona
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Re: HSA

Post by nelsona »

No special forms for CRA.
Any unqualified distributions will be taxed in IUS, and in Canada, with credit for US tax and 20%penalties paid given on your Cdn return.
IRS form 8889 is used each year to attest whether your expenses were qualified or not.
If you use your HSA to pay your medical expenses, then you cannot claim these as a medical expenses on your CDn return, as you have essentially been reimbursed by your HSA. Otherwise, you would also have to declare the income made by your HSA (gains, interest etc) esch year on your Cdn return, treating it as an ordinary account (not advisable).

I would suggest using your HSA only for qualified expenses (by IRS definition, which is quite broader than CDn rules) and not claiming any expenses on your Cdn return (except for medical insurance premiums, which are not reimbursable by your HSA).
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nelsona
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Re: HSA

Post by nelsona »

It is debatable if medical expenses paid by your HSA are allowed to be claimed on your Cdn return. I will leave that up to you. The principle in US is that you cannot claim medical expenses as a deduction if paid by your HSA funds. Besides many of the things you can clim on an HSA are not eligible in Canada.

I would not be contacting CRA to ask for any specific guidance on this because (a) you will likely get several answers, and (b) you are alerting them into thinking you have a foreign source of taxable income. HOWEVER, I believe HSAs are covered by Article XXI.2 as an arrangement to provide employee benefits, and thus only subject to taxation in Canada, if taxed in US.

So, since only UNqualified withdrawals would be taxable in US, only these would be taxable in Canada,
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nelsona
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Re: HSA

Post by nelsona »

While we are on the subject I am also sure than an HSA meets the definition of an "exempt trust" by ITA 233.2(1) for the same reasons it is not generally taxable each year either, so does not have to be reported on T1135.
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brianbbc
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Re: HSA

Post by brianbbc »

Thanks for the response. Just wondering about the 20% penalty you mentioned early in your response. Is this assuming I take the non qualified expenses prior to age 65 on the irs side? My understanding is that the irs drops this penalty after age 65, and unqualified withdrawals are then taxed as regular income, similar to ira withdrawals.
Also, will I need to file 1040nr with the irs when I make qualified or non qualified distributions?
nelsona
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Re: HSA

Post by nelsona »

I simply mentioned the penalty, you can figure it out on the form.
File only if you have unqualified withdrawals.

Did you never use your HSA? Remember you can claim any expenses incured since the inception of the account, anytime now or in the future.
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brianbbc
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Re: HSA

Post by brianbbc »

I’ve used them while I was a USA resident, since moving back to Canada a few years ago haven’t used them or triggered any event. I’m not required to do any irs 1040 or the like because no green card or USA citizenship. Besides the form you mentioned, was just wondering what else the irs required, ie 1040nr or something in that category for Canadians only as I can’t just file a w8-Ben for the hsa. I figured the 1040nr would allow me to deal with the non qualified hsa distributions
nelsona
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Re: HSA

Post by nelsona »

YES, you would have to file a 1040 or 1040NR if you have US income, which would be non-qualified withdrawals.

But if you only take qualified withdrawals, you don't file anything.

I would be using that HSA now, before you lose track of your old medical expenses.
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brianbbc
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Re: HSA

Post by brianbbc »

Thanks, that the answer I needed. I’ve been meticulous about keeping records over the years
nelsona
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Re: HSA

Post by nelsona »

Sorry, you do need to file a 1040NR even if you take qualified withdrawals.
You can take all your unclaimed expenses from past years and take a withdrawal in one year, report it on the 1040NR, and then do this every 3-4 years if you wish.
How big is your HSA?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
brianbbc
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Re: HSA

Post by brianbbc »

Yeah, it’s was that 1040nr I was wondering about. Between my wife and mine it’s about 90k USA. Before I left the USA a few years back I took out a lump $20k in qualified withdrawals, been collecting those for 14 years with 3 kids and 2 hip replacements. My strategy has been just keeping good records, start to withdrawal both qualified and non qualified when I turn 65. Lucky here in Canada my wife’s blue cross at work covers most everything else the government doesn’t. Hsa sitting in 500 index fund at fidelity USA untouched. I figured that’s not too bad approach.
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