I apologize - I am in the other 47 state mode so much (where HSAs are deductible) that this slipped my mind, even though you mentioned it up front.
You are correct that the expenses that were paid with HSA distributions are not being carried down to Alabama even though these expenses were obviously paid with after-tax money (from Alabama's point of view).
OK. you know what the total expenses on Schedule A are, right? subtract the insurance reimbursement (if any, and this is the amount that should be carried to Alabama.
But you can deduct the amount only to the extent that it exceeds 4% of your Alabama AGI. So you can figure that number, too, right?
OK, now you have what the medical & dental deduction in Alabama should be...and you also know what deduction you actually have.
You will place the difference between it is and what it should be on the screen "Let's Check for any Alabama Deductions" under the subheading "Other Deductions - Other itemized deductions not subject to a 2% floor". Click on Start and you will see a place to enter a description and a dollar amount. Remember that you have to allow for the 4% floor - that is, if the expenses carrying from Sch A are less than the 4% floor, then you have to add the amount of the HSA expenses that would be over the 4% floor if all were done correctly.
I can't tell you what description to use - just make it something that you will remember if anyone ever writes and asks what this is - you will just need to explain that you are using software that unexpectedly disallowed medical expenses that were covered by an HSA as if the HSA were non-taxable, so this adjustment made the overall deduction correct again.
It won't be on the right line on the Alabama return, but the bottom line will be the same.
Sorry this has taken so long...
