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Deductions & credits
The IRS considers that distributions from your HSA are, by default, taxable. This is why your tax goes up and your refund is reduced when you enter the 1099-SA.
HOWEVER, when on the next screen you indicate that the distributions were all for qualified medical expenses, the distribution is removed from taxable income and your taxes go back down and your refund goes back up.
Things happen in the background in TurboTax that are not obvious to the user; that is why we urge you not to watch the refund meter too closely.
In rare cases if the user jumps off the 1099-SA entry screen or the next screen too quickly, the distribution can be stuck as taxable. To fix this, you will need to delete your 1099-SA and re-add it.
To do this:
*** Desktop***
1. go to View (at the top), choose Forms, and select the desired form. Note the Delete Form button at the bottom of the screen.
*** Online ***
1. go to Tax Tools (on the left), and navigate to Tools->Delete a form
2. delete form(s) 1099-SA (if one)
3. go back and re-add the 1099-SA
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