There is a problem with this solution for people in some states such as California which do not allow the HSA deduction. When one increases the 2023 medical expenses in TurboTax by the distribution amount for 2022 medical expenses, it will calculate the Federal Tax liability properly. However the California TurboTax software automatically adds the HSA distribution back for the medical expense California state calculation. Therefore your California medical expenses are overstated by the amount of the HSA distribution. So basically the choice is that one can understate their federal medical expenses or overstate their state medical expenses. THE SOLUTION WOULD BE FOR TURBOTAX TO ASK IN THE "INTERVIEW" SECTION THE AMOUNT (IF ANY) APPLIED TO PREVIOUS TAX YEAR MEDICAL EXPENSES.
