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Level 1

I entered in a withdraw from my HSA and my taxes owed went up about 60% of the amount of the withdraw.

I entered in a withdraw from my HSA from form 1099-SA and my taxes owed went up about 60% of the amount of the withdraw? i.e. $1500 withdrawl cost me $800.

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Level 18

I entered in a withdraw from my HSA and my taxes owed went up about 60% of the amount of the withdraw.

It depends on what you did.

If all the distribution was for qualified medical expenses, then what happens is this:

  1. Distributions are considered taxable by the IRS until you assert that they were all for qualified medical expenses.
  2. So when you enter the 1099-SA, the tax due goes up, because the amount of the distribution is added to taxable income (although taxing it at 53% seems excessive).
  3. Then, as soon as you proceed to the screen that asks you if the distribution was all for qualified medical expenses, the distribution is removed from your income, and your tax due falls back to where it was.

But your situation may have been another: if you indicated that the distribution was not for qualified medical expenses.

  1. Distributions are considered taxable by the IRS until you assert that they were all for qualified medical expenses.
  2. So when you enter the 1099-SA, the tax due goes up, because the amount of the distribution is added to taxable income. BUT, in addition to the regular income tax, there is a 20% penalty on the distribution over and above the federal income tax. Thus, if your marginal tax rate is 33% and you add a 20% penalty, that comes very close to 53%.
  3. Of course, this won't change for the better as you proceed through the return.

View solution in original post

2 Replies
Level 17

I entered in a withdraw from my HSA and my taxes owed went up about 60% of the amount of the withdraw.

Did you answer that it was all used for medical expenses?
Level 18

I entered in a withdraw from my HSA and my taxes owed went up about 60% of the amount of the withdraw.

It depends on what you did.

If all the distribution was for qualified medical expenses, then what happens is this:

  1. Distributions are considered taxable by the IRS until you assert that they were all for qualified medical expenses.
  2. So when you enter the 1099-SA, the tax due goes up, because the amount of the distribution is added to taxable income (although taxing it at 53% seems excessive).
  3. Then, as soon as you proceed to the screen that asks you if the distribution was all for qualified medical expenses, the distribution is removed from your income, and your tax due falls back to where it was.

But your situation may have been another: if you indicated that the distribution was not for qualified medical expenses.

  1. Distributions are considered taxable by the IRS until you assert that they were all for qualified medical expenses.
  2. So when you enter the 1099-SA, the tax due goes up, because the amount of the distribution is added to taxable income. BUT, in addition to the regular income tax, there is a 20% penalty on the distribution over and above the federal income tax. Thus, if your marginal tax rate is 33% and you add a 20% penalty, that comes very close to 53%.
  3. Of course, this won't change for the better as you proceed through the return.

View solution in original post