The IRS assumes that such distributions are, by default, taxable - this is why your tax increased. HOWEVER, on the next screen, you would be asked "was this distribution used for medical purposes?" When you answer "yes", then the distribution becomes a qualified distribution, and it is removed from your taxable income.
This is a good reason not to watch the Refund Meter too closely.
@linksys2013
"In the question do I respond 'Yes' even though no funds were used for the year?" Which question are you referring to?
If it is the question: "Did you use your Health Savings Account (HSA) to pay for anything in 2023?", then answer "yes" only if you actually did.
If it was another question, please add it here. Remember that we in the Community cannot see your private tax data nor the screen you are on, so help us help you.
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