ACH Reversal… Tax Paperwork?

Submitted by Amar Patel on Tue, 2022-12-13 03:49

Over the weekend, I setup a small transfer to send funds, say $20, from my checking account at one bank (call it Big Bank) to my savings account at another bank (call it Small Bank). At Small Bank, I actually have 2 accounts: the savings account and a HSA. Somehow, and not per instructions, the funds ended up in the HSA. I talked to Big Bank tonight, since that is where the transaction was initiated, and told them of the error. They said tomorrow they will talk to their teams and simply reverse the ACH transaction and assess with Small Bank why it went wrong. All that sounds fine… but since the HSA was involved, will I now have to deal with a contribution and withdrawal with Small Bank (and 5498 and 1099 forms next year)?



Submitted by Alan - IRA critic on Tue, 2022-12-13 16:03

If the banks agree that this was custodian error, small bank could re allocate the transfer out of the HSA to their savings account and not issue a 1099R or 5498. This depends on the tax Dept for the small bank and if they made the error. Since year end is very close, if this is not resolved by year end it likely increases the chance of these forms being issued in January as once the year end snapshot is transmitted for tax reporting it makes it more difficult to cull this one transaction out even if they otherwise would. So having this occur in December is not a good time.

Submitted by Amar Patel on Tue, 2022-12-13 17:06

Thanks for the response. After several calls today to Big Bank and Small Bank, I have learned that 1) Big Bank believes it did its part correctly (but it may have coded the receiving account as a checking account though my paperwork stated it was a savings account and thus the potential for confusion) and 2) my follow-up with Small Bank resulted in an internal Small Bank transfer that was supposedly completed in such a manner that no 5498 or 1099 will be generated for this incoming and outgoing transfer. When I log into the Small Bank website, I can see the activity… so I hope their system is “smart enough” to know it was a correction of an error. I’m asking for the manager to provide a statement on letterhead that I can keep filed with my 2022 taxes, just in case a 5498 or 1099 shows up because of this. Should I call back and double-check how it was entered (like what “key words” do I use for them to know what to check for in how the transaction was completed)? And, just in case something still goes wrong, I can just keep the 5498 and 1099 and file it as if I meant the transactions, though I didn’t. However, I won’t have a “receipt” for the $20 involved in this error to support a medical expense. How would that be reported to the IRS?

Submitted by Alan - IRA critic on Tue, 2022-12-13 17:50

  • You would be looking for something similar to “non reportable adjustment” on the HSA activity statement, which should be available the day following any HSA transaction. If the bank does not get this done before year end or does not code it to avoid the tax forms, you will have to report the forms you get.
  • If the 1099 SA cannot be averted, one coded as an excess contribution distribution code 2 (with earnings adjustment) will be much less trouble than a 1099 SA coded 1.

Add new comment

Log in or register to post comments