Using TT 2018 Deluxe. I am in the 12% marginal tax bracket. I am retired with Medicare A, B and D plus Medicare supplemental plans for both my spouse and me. Total deductions from income are higher than the standard deduction for married filing jointly and over 65, so we itemize on Schedule A. I had already inputted my deductible medical expenses for 2018. When the 1099 SA arrived, I inputted the distribution amount and noted that all had been spent for qualified medical expenses. The software took my supposedly non-taxable distribution from my HSA, multiplied it by 12% and thus increased my tax liability. Example - if the distribution was for $1000 for a surgical procedure, the software increased my tax liability by $120. The only way I can get back to the original tax liability is to now increase my medical expenses by the amount shown in the HSA distribution. That makes no sense at all.
