Yes, if you used this money on qualified medical expenses then this distribution should be tax-free. If it was not used for that, you pay tax on the distribution as well as a 20% penalty. To make the distribution tax-free, you have to indicate it was used for qualified medical expenses:
- Go to Federal > Wages & Income > Less Common Income > 1099-SA, HSA, MSA and click Start/Revisit.
- Make sureyou have HSA selected.
- If you made any withdrawals from your HSA, you should receive a 1099-SA and answer Yes to Did you use your HSA to pay for anything in 2021?
- Enter the information from 1099-SA exactly as it appears
- Did you spend your HSA money on medical expenses only? Answer Yes, I only used it for medical expenses.
- Assuming you did not inherit this HSA, select No.
- Under Let's enter your HSA contributions your employer amount should already be in there from the W-2. Unless you made additional contributions, leave Any contributions you personally made blank. Please do not re-enter your $7,200 contribution here as that has already been accounted for by the amount on your W-2.
- Answer the questions on the next two screens, then make sure you answer the question related to your HDHP correctly on the next screen.
