Why is my HSA distribution taxable?
HSA distributions (money taken from an HSA account) are nontaxable, but only if the money is used to pay for qualified medical expenses. If the money is used for anything else, it's taxable.
After you enter your 1099-SA form, you'll be asked Did you spend all the money you took out on medical expenses? (This is referring to the Box 1 amount on the previous screen.)
If you answer Yes, the entire distribution is nontaxable. But if you answer No, the portion you didn't spend on medical expenses is taxable income which appears on Form 8889, line 16 and is transferred to line 21 of your 1040 form.
Sounds like you failed to enter the 1099-SA form which then didn't complete the form 8889 .... it the IRS just asking you to complete the missing form ? Or do you need to amend the return ?
