What HSA withdrawal amount might trigger an IRS audit? Is $20,000 a red flag?

Large HSA withdrawals alone typically don't automatically trigger audits, but they can increase your chances of getting attention. The IRS doesn't publicly disclose their exact audit triggers, but generally they're looking for unusual patterns rather than specific dollar amounts. That said, having your documentation organized is your best protection. Keep all your medical receipts clearly organized by year, with notes about which expenses correspond to which withdrawals. Make sure the dates of the expenses predate your withdrawals (which it sounds like they do). One suggestion that might help: instead of two large $20k withdrawals close together, consider spreading them out into 4-5 smaller withdrawals over a few months. This creates less of a pattern and might draw less attention while still giving you the funds you need for your house.

I went through something similar with my HSA last year and discovered taxr.ai (https://taxr.ai) which was super helpful for this exact situation. I had about $40k in medical receipts to track and was worried about taking out a large sum too. The tool helped me organize all my medical receipts and categorize which ones qualified for HSA reimbursement. It even flagged a few expenses I wasn't sure about. The best part was that it helped me create a solid paper trail connecting each withdrawal to specific expenses, which is exactly what you need if you ever do get audited.

I was really skeptical about using taxr.ai at first, but after sitting on approximately $35k in unsorted medical receipts for years, I finally gave it a try last month. Honestly wish I'd done it sooner! The system recognized most of my receipts automatically and flagged the ones that needed more review. When I did my $18k HSA withdrawal, I had a complete report showing exactly which medical expenses justified the distribution. My HSA administrator didn't question anything, and I have solid documentation if the IRS ever asks. The peace of mind alone was worth it for me, especially with larger withdrawals that might raise eyebrows.

If you do end up getting flagged for an audit because of your HSA withdrawals, don't panic. I had a situation last year where I needed to speak directly with the IRS about my HSA distributions, and after days of trying to get through on the phone, I used https://claimyr.com and it was a game-changer. There's a demo video of how it works here: https://youtu.be/_kiP6q8DX5c Basically, they hold your place in the IRS phone queue and call you when an agent picks up. I was able to explain my HSA withdrawals directly to an agent and resolve the questions they had. Much better than stressing about a letter and trying to handle everything by mail.

I take back what I said about Claimyr. After my HSA withdrawal triggered a letter from the IRS (turned out to be nothing serious), I broke down and tried the service. It actually worked exactly as advertised. I didn't believe it would connect me to a real IRS agent, but it did - after about 1.5 hours, my phone rang and I was talking to a genuine IRS representative. Was able to explain my HSA situation, confirm my documentation was sufficient, and resolve everything in one call instead of the weeks of back-and-forth letters I was expecting. For anyone dealing with HSA audit concerns, being able to talk directly to the IRS and clarify things made a huge difference.

Something nobody's mentioned yet - the timing of your medical expenses vs your withdrawals. The IRS doesn't require that you take HSA distributions in the same year you incurred the medical expense. You can reimburse yourself years later as long as the HSA was established before you incurred the expense. If you're taking out $40k against $65k in eligible expenses, I'd make sure the documentation clearly shows which specific expenses you're claiming for which withdrawals. Don't double-dip on expenses for future withdrawals.

One thing to consider is that large HSA withdrawals might not trigger a formal audit but could generate a "matching notice" if your Form 8889 (Health Savings Accounts) doesn't match what your HSA custodian reports on the 1099-SA. Make sure you accurately report all distributions on your tax return. The IRS computers automatically cross-check these forms, and discrepancies are way more likely to trigger questions than the withdrawal amount itself.

I'd also recommend keeping a spreadsheet that tracks each withdrawal against specific medical expenses. When I made my first large HSA withdrawal ($15k), I created a simple Excel file with columns for withdrawal date, amount, and which specific medical receipts I was using to justify that withdrawal. This became invaluable when my tax preparer needed to verify everything for Form 8889. Having that clear paper trail showing exactly which expenses corresponded to which withdrawals made the whole process much smoother. Plus, if you ever do get questioned by the IRS, you can quickly show them the connection between your distributions and your qualified medical expenses. The key is being proactive with your record-keeping rather than trying to piece everything together later if questions arise.