HSA Prior year expenses

[cgrimaud]

2016 HSA distribution was used for prior year medical expenses.  Turbo tax is deducting the distribution amount from current year reported medical expenses.

[BMcCalpin]

As you probably know, you can take a distribution at any time to reimburse yourself for prior-year medical expenses paid with out-of-pocket dollars, so long as you were in the HSA when you incurred the expenses.

However, this distribution, if taken in 2016, is a 2016 distribution, no matter what year the original expense is in.

I assume that when you say "Turbo tax is deducting the distribution amount from current year reported medical expenses", that you are referring to the fact that TurboTax is subtracting your HSA distribution from the medical expenses you listed in Medical and Dental expenses for Schedule A.

It's not obvious in TurboTax, but the software wants you to enter all expenses in Schedule A. It then asks you for your insurance reimbursements so it can subtract them, and it also automatically subtracts your HSA distributions.

So to make everything work out in TurboTax, go ahead and enter your prior-year medical expenses that the 2016 HSA distribution was used for so that they will cancel each other out, and the HSA distribution doesn't cause some real 2016 expense to be not properly deducted.

[fbmcardl2]

I have the same problem with TT reducing 2019 medical expenses by the amount of an HSA distribution taken in 2019 for a 2018 medical expense, which the tax law absolutely allows. But TT programmers don't know enough about tax law to add a question to the HSA panel as to whether the distribution is for a current year medical expense or a prior year medical expense. TT automatically reduces the current year medical expenses by the amount of the HSA reimbursement for a prior year medical expense by incorrectly increasing the amount reimbursed. So taxpayers in that situation are being robbed of a deduction by the expensive TT software Premier with Live and Max. 

The taxpayer result would be mathematically correct if the TT taxpayer increased 2019 medical expenses by the amount of 2018 expenses reimbursed, a solution suggested in this earlier reply. I just don't know if that adjustment would be acceptable to IRS if they query about medical expenses and the taxpayer explains the flaw in the TT software? I also don't know why TT programmers can't apply the tax law correctly by simply adding this sub-question about whether the HSA 1099 includes reimbursements for expenses in a prior year.

Replies welcome!

[rfisher71]

I enter my expenses every year. If I do take an HSA distribution for a previous year, then I do as you suggest however I put the expense as a single entry into the expenses such as "Reimbursement for medical expenses incurred in tax year 20XX". As another has said in this thread, I don't know why TT can't fix this with a simple question about previous year's expenses and the amount.