Distributions from an HSA are considered income IF you did NOT use them for qualified medical expenses.
After you enter your 1099-SA form, you'll be asked Did you spend all the money you took out on medical expenses?
If you answer Yes, the entire distribution is nontaxable. But if you answer No, the portion you didn't spend on medical expenses is taxable income which appears on Form 8889, line 16 and is transferred to Schedule 1, line 21 of your 1040 form.
To check your entries, please follow these steps in this FAQ:
The deduction is already shown on your W-2--it is subtracted from your taxable income shown in Box 1.
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