@ray805 wrote:
Thank you. I will try to use it as a 2024 medical expense. How will I present this in my tax return when I do my taxes next April? Not sure if I've ever seen a line in the 1040 or any of the schedules where I put down that I used the refund as a 2024 medical expense. The HSA administrator will send to me and the IRS a form showing its been refunded.
If you get a 1099-SA (distribution from an HSA), and you were able to apply the refund to other medical expenses, then you just enter the 1099-SA and when asked, check the box for "yes, I used all the funds for medical expenses."
If you get a 1099-SA (distribution from an HSA), and you can't apply the refund to medical expenses, there are two ways this could be handled, all of which will lead to the correct outcome, but with pros and cons.
1. Enter the 1099-SA for the refund, answer "yes, I used it all for medical expenses." Then go to the section for "other uncommon income" or miscellaneous income, and click through until you get to "reimbursements of previous deductions" (or it might be called "taxable recovery"). Enter the amount of uncovered refund (the amount of refund not applied to medical expenses) as miscellaneous income.
2. Leave the 1099-SA off your return completely (it probably shouldn't be issued, actually). Enter the taxable recovery as described. File by mail, and attach a copy of the 1099-SA and a written explanation of why you did not include it on your return. The reason is that if you entered the 1099-SA and indicated that only part was used for medical expenses, you would be charged income tax plus a 20% penalty on the uncovered part of the refund, but in this situation you should only be charged income tax and not the penalty. But you can't enter this kind of explanation in turbotax and e-file, so doing it this way means you have to file by mail. I would recommend #1.
