when using a debit card, there are times where a merchant has authorized a purchase and for whatever reason (there are a few) it was approved and we must honor the purchase and it will take the account negative. (This is usually things like gas station purchases where they only authorize $1 for pay at the pump, even though the actual charge was $50). When this occurs we will close the HSA account and per federal regulations, since a prohibited transaction had occurred, the HSA stops being an HSA as of January 1st of that year.

So... Can the HSA be reopened or re-established after the date of the prohibited transaction? and if so, when?

It is only a prohibited transaction when you post the overdraft to the HSA account and thereby lending them money. If you never post the item and collect it outside of the HSA, then you do not disqualify the HSA. Whether a prohibited transaction occurs is up the bank and not the HSA accountholder.

That, of course, would require your rejecting the transaction that would have overdrawn it and using some other means to collect it. You may not have the ability when it comes to debit card items. But if you do, that option flag should be set on any HSA account.

John, rejecting the transaction? I think not necessarily. If it happened already, you can't reject it. You just don't post the transaction to the account and post it to something like a GL suspense account while you work out the collection with the customer.