1099-SA "Amount Used on Medical Expenses"

[minaxkate]

I'm very confused about what I should enter in the "amount spent on medical expenses" field.
My 1099-SA form from my HSA account says I have about $1,000 in gross distributions.
I took out about $300 at an ATM. (I know, shame on me.)

It asks "Did you spend all your HSA money on medical expenses?"
I selected, "No, I did not."
It then asks two more questions, and I selected, "I spent part of it on medical expenses."
I only spent $25 on medical expenses, and the rest is still in my account, unused.
So when it asks me to enter the amount I used on medical expenses, do I put "$25"? 
When I do that and it brings me to the summary page, it lists the other $975 as taxable deductions. So then should I change it to $975 even though I have not spent it yet?

I do not want to get taxed for money that I have not spent yet! Especially since I plan to use it for medical expenses very shortly!
Thanks!

[BMcCalpin]

The IRS generally recognizes two methods of tax-free distribution from an HSA:

• ·         using a debit card or similar instrument to directly pay for medical expenses, and
• ·         taking a distribution to repay yourself for medical expenses that you have already paid out of pocket. See “Distributions From an HSA” in Publication 969.

Using the debit card provides a paper trail for your medical expenses; however, since reimbursing yourself does not do so automatically, you are required to keep the documentation showing the amount you spent out of pocket on qualified medical expenses and the corresponding distribution to yourself to repay yourself.

An HSA is similar to an IRA. If you take money out of an IRA, it’s considered taxable income, even if it’s still sitting in your checking account unspent. The same applies to an HSA. You can’t take money out of an HSA in the expectation that some day you will spend it on medical expenses.

In your case, especially, the year ended without you spending the distribution on qualified medical expenses; that makes the whole amount less the $25 taxable.

[dmertz]

I interpret the details as indicating that $700 was used to pay medical expenses via the HSA debit card and that $300 was taken out of the HSA via the ATM.  If so, you an apply the $300 against any unreimbursed qualified medical expenses not paid directly from your HSA that you incurred [in 2016 or in an earlier year] after the establishment of the HSA as long as you can document those expenses.

[BMcCalpin]

You may be correct. The taxpayer emphasized that s(he) sent only $25 on medical expenses, but perhaps that was only out of the $300, not the $1,000.

If so, and if the $700 was indeed spent on qualified medical expenses, then the taxpayer should report $725 as qualified medical expenses.

Note, however, that Publication 969 does not address the situation of withdrawing HSA amounts in one year on the possibility that they might be spent on qualified medical expenses in a future year, but only the reverse - that when the taxpayer spends out of pocket funds on qualified medical expenses, that, after the fact, a withdrawal from the HSA can be made to reimburse the taxpayer.

If you have some documentation on this particular case, I would love to see it and add it to my collection.

[dmertz]

"Publication 969 does not address the situation of withdrawing HSA amounts in one year on the possibility that they might be spent on qualified medical expenses in a future year"

I didn't mean to imply that.  An HSA distribution in the current year can be applied to a medical expense incurred in the current year or to a medical expense incurred in an earlier year, as long as the expense was incurred after the establishment of the HSA.  I'll update my previous comment to be more specific.