It doesn't matter that you didn't use the money. It's in your possession. You have 60 days to do a HSA Rollover so you don't get taxed on the distribution. If you didn't take the check and open a new HSA account, at a bank of your choice, you'll have to pay taxes on the HSA distribution.
The IRS requires you to prepare Form 8889 and attach it to your tax return when you take a distribution from an HSA.
- If your 1099-SA indicates you did not use the distribution for qualified medical expenses, you will pay income tax on the portion you used for nonqualified expenses.
- You report the taxable amount on the “other income” line of your tax return and write “HSA” beside it.
- You will also have to pay an additional tax of 20 percent on the taxable portion of your distribution, which you’ll calculate on Form 8889. (TurboTax will handle the calculations and fill in all the right forms for you.)
Additional information: Where do I enter my 1099-SA?
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