topic If my HSA distribution is all a qualified medical expense, why is the distribution showing up as taxable income? in Deductions & credits

If my HSA distribution is all a qualified medical expense, why is the distribution showing up as taxable income?

papabear — Sat, 01 Jun 2019 20:44:36 GMT

Is there a bug in the software?

Where on your tax forms does the amount appear?

ghost — Sat, 01 Jun 2019 20:44:37 GMT

Where on your tax forms does the amount appear?

Be sure you told the program that all distributions were...

Bsch4477 — Sat, 01 Jun 2019 20:44:38 GMT

Be sure you told the program that all distributions were spent on qualified medical expenses.

Unless you see the amount on Form 1040, Schedule 1, line...

ghost — Sat, 01 Jun 2019 20:44:39 GMT

Unless you see the amount on Form 1040, Schedule 1, line 21, it's not taxed. Also, on Form 8889, line 16.

The taxable income is showing up on Line 21 of Schedule 1...

papabear — Sat, 01 Jun 2019 20:44:40 GMT

The taxable income is showing up on Line 21 of Schedule 1 and Line 6 of Form 1040. I checked "yes" that the entire distribution was a qualified medical expense but Line 15 of Form 8889 shows no qualified medical expenses.

Try deleting your entire 1099-SA entry and reenter.

ghost — Sat, 01 Jun 2019 20:44:42 GMT

Try deleting your entire 1099-SA entry and reenter.

I deleted the entire 1099-SA and then re-entered it, chec...

papabear — Sat, 01 Jun 2019 20:44:42 GMT

I deleted the entire 1099-SA and then re-entered it, checking "yes" that it is all a qualified medical expense. It still shows as taxable income. I'm convinced that there is a bug is the software.

Online Turbotax software, correct?

ghost — Sat, 01 Jun 2019 20:44:43 GMT

Online Turbotax software, correct?

Yes, online software. Purchased it in mid-December and h...

papabear — Sat, 01 Jun 2019 20:44:45 GMT

Yes, online software. Purchased it in mid-December and have installed all updates.

So the software was downloaded to your computer? Not an o...

ghost — Sat, 01 Jun 2019 20:44:46 GMT

So the software was downloaded to your computer? Not an online version via a browser. Just need to clarify. Asking around.

@TurboTaxBillMc Bill, can you offer assistance to @papabear

ghost — Sat, 01 Jun 2019 20:44:47 GMT

@TurboTaxBillMc Bill, can you offer assistance to @papabear

As you have probably read, when you add the distribution...

BMcCalpin — Sat, 01 Jun 2019 20:44:48 GMT

As you have probably read, when you add the distribution on the 1099-SA, your distribution is temporarily added to Other Income, because by default, the IRS considers the distribution to be taxable income until on the next screen you tell TurboTax that the entire distribution was for qualified medical expenses.

However, TurboTax does not remove the distribution from Other Income until the next screen after that, and it is possible that if you jump away from the HSA interview too quickly on that next screen, the recalculation (removal of Other Income) never takes place.

It can happen that TurboTax can hold on to amounts even when you think you have deleted them. This is an example. Once the recalculation doesn't take place, the Other Income doesn't ever go away, even when you repeat the HSA interview.

So you need to delete all your HSA information from your return(see below) and then restart your HSA interview. Please make sure that you go to the end of the HSA interview so that all the proper calculations and recalculations are done.

***Delete HSA Information***

The safest - although brute force - way to fix this is to do the following in this order:

1. make a copy of your W-2(s) (if you don't have the paper copies)

2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen

*** Desktop***

3. go to View (at the top), choose Forms, and select the desired form. Note the Delete Form button at the bottom of the screen.

*** Online ***

3. go to Tax Tools (on the left), and navigate to Tools->Delete a form

4. delete form(s) 1099-SA (if one), 8889-T, and 8889-S (if one)

5. go back and re-add your W-2(s), preferably adding them manually

6. go back and redo the entire HSA interview.

Thanks for the suggestion. I followed your instructions...

papabear — Sat, 01 Jun 2019 20:45:20 GMT

Thanks for the suggestion. I followed your instructions and deleted the various forms and then went back and re-entered the data and re-did the HSA interview. Unfortunately, the result was the same. The HSA distribution is still showing as taxable income. Any other thoughts? I should mention that I purchased and downloaded the software back in mid-December.

Thank you for getting back to us. I would like to take a...

HollyP — Sat, 01 Jun 2019 20:45:36 GMT

Thank you for getting back to us. I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below when using TurboTax Desktop:
1. Click into your return.
2. Click Online and select "Send Tax File to Agent".
3. This will generate a message that a diagnostic copy will be created. Click on OK, the tax file gets sanitized and transmitted to us.
4. Please respond with the Token Number that was generated.

papabear, have you updated your desktop software? There w...

BMcCalpin — Sat, 01 Jun 2019 20:45:37 GMT

papabear, have you updated your desktop software? There was an issue that was fixed in the middle of December, but it didn't occur to me that anyone still had that old software.

Do us a favor and do what TurboTaxHols told you to do first. Then if you haven't updated your software (at the top, click on Online, then Check for Updates). Then reopen your return, delete your HSA information, and try it again...and then please come back and tell us what happened.

I updated the software each time I was notified that an u...

papabear — Sat, 01 Jun 2019 20:45:38 GMT

I updated the software each time I was notified that an update was available. I have sent a diagnostic copy of my return. The token number is 496373.

Thanks!

BMcCalpin — Sat, 01 Jun 2019 20:45:40 GMT

Thanks!

@papabear I have looked at your tax return, and the good...

BMcCalpin — Sat, 01 Jun 2019 20:45:41 GMT

@papabear I have looked at your tax return, and the good news is that your HSA distribution is not being counted as taxable income (Line 21 on Schedule 1 is blank). When you did the delete and re-add on my suggestion, did you go and look at line 21 again, or are you looking at the Wages & Income screen, where the HSA distribution is listed? Also see line 16 on your 8889 where the taxable HSA distribution is zero. It is confusing but the HSA distribution is listed at the top of the Wages & Income screen because it MIGHT be taxable, not because it necessarily is.

Thanks for looking at the return. It's puzzling that thi...

papabear — Sat, 01 Jun 2019 20:45:41 GMT

Thanks for looking at the return. It's puzzling that things look OK from your perspective. When I open my return, it still shows the HSA distribution on line 21 of Schedule 1 for some reason. I purchased and downloaded the software on December 13. You had mentioned earlier that there was an issue that was fixed in the middle of December. Is it possible that I missed that fix even though I have downloaded and installed any updates since the purchase? I'm thinking that maybe my best bet is to delete the current software on my computer, download and install the latest version and then start my return again from scratch. Please let me know what you think.

I am puzzled, too. It really does look great on my deskto...

BMcCalpin — Sat, 01 Jun 2019 20:45:43 GMT

I am puzzled, too. It really does look great on my desktop - and I didn't make any changes to your return, just went straight to view the Forms.

This does suggest that there is a problem with the software you are running on your desktop. If you can download the software again without paying, please do, and if they want you to pay again, we'll see if TurboTaxHols can help.