Yes, and we would recommend returning checks that would result in an overdraft to the HSA account. The IRS rules for HSAs prohibit accountholders from overdrawing an HSA — overdrafts are treated as loans, which are prohibited transactions.

(It is possible to link a savings account to an HSA to cover overdrafts as a workaround, but this approach may increase your bank’s monitoring responsibilities due to the added risk of excess contributions. See our IBA Q&A on this issue.)

For resources related to our guidance, please see:

• IRS Notice 2008-59, Guidance on Health Savings Accounts (July 21, 2008) (“Q-34. If an account beneficiary borrows funds from his or her HSA, is this a prohibited transaction under § 4975? A-34. Yes. An HSA is a plan as defined in § 4975(e)(1)(E). An HSA account beneficiary is a disqualified person under § 4975(e)(2). A loan or extension of credit between a plan and a disqualified person is a prohibited transaction. Section 4975(c)(1)(B). Thus, any direct or indirect extension of credit between the account beneficiary and his or her HSA is a prohibited transaction.”)