Entering HSA Distribution Results in Reduced Refund?

[littlediff]

I am self employed with an HSA. I made maximum allowable contribution at the beginning of the year and, of course, made deductions all for qualified medical expenses. When I enter the gross distribution amount (box 1 in Form 1099-SA) my calculated refund is immediately reduced for both federal and state refunds for a total of close to $1,000. I reviewed several posts and googled this issue and don't understand why it is reducing my refunds. Any comments would be greatly appreciated!

[Opus 17]

Keep going.  Turbotax will assume the distributions are taxable until you get to the question about "did you use the distributions only for qualified medical expenses."  

Also, in some cases Turbotax will tax your contributions until after you finish the entire interview and answer the questions that show you had qualifying insurance.  So just keep going.

[BillM223]

The IRS considers that distributions from your HSA are, by default, taxable. This is why your tax goes up and your refund is reduced when you enter the 1099-SA.

HOWEVER, when on the next screen you indicate that the distributions were all for qualified medical expenses, the distribution is removed from taxable income and your taxes go back down and your refund goes back up.

Things happen in the background in TurboTax that are not obvious to the user; that is why we urge you not to watch the refund meter too closely.

In rare cases if the user jumps off the 1099-SA entry screen or the next screen too quickly, the distribution can be stuck as taxable. To fix this, you will need to delete your 1099-SA and re-add it.

To do this: 

*** Desktop***

1. 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 ***

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

2. delete form(s) 1099-SA (if one)

3. go back and re-add the 1099-SA

[LAURENTIU6]

My refund goes down after entering the amount, but does not go back up after I clicked that only medical expenses were used.  I deleted the 1099-SA form, but the same thing happened after completing the 1099-SA again.  What could be the problem please?

[nikkilee543]

I am having the same issue. My refund dropped significantly. I don't know why. 

[KeshaH]

After you enter your 1099-SA, you will need to let TurboTax know that the amount was withdrawn for medical expenses. Once you indicate that, you should see your refund go back up as the amounts will not be taxable.

[Peckkd]

The same issue is happening to me, however, when I select it was only used for medical expenses the amount dropped significantly (like $1800 worth). Any thoughts on this? I finished the entire interview and moved on to mortgage and it's still extremely low. It was over $2k before I selected it was only used for medical expenses. 

[Peckkd]

But that's the problem, it's not going back up. Thoughts on this? 

[MarilynG1]

• Start at the beginning of the HSA section Deductions & Credits > Medical.
• Indicate who had the HSA account (check box).
• Then enter the info from your 1099-SA. Box 3 should have Code 1 for a Normal Distribution.
• Indicate Yes, for Medical Expenses. 
•  After DONE, keep going.
• Answer questions about HDHP coverage, and type of plan

The HSA is linked to the HDHP plan, so if you missed this portion, the distribution may show as taxable.

@Peckkd 

[Peckkd]

Yes, I completed all of those steps, and the refund still drops over 2k after I selected the expenses were used for medical only. I selected it was a HDHP and it was also a family plan. I completed the entire section and it's still not working. 

[MarilynG1]

Does the person that has the HSA also have the HDHP plan?  At the beginning of the section, there are checkboxes to indicate who had the HSA.  In the HDHP section, indicate that all were covered under the Family Plan.  You may want to delete your entries in this section and re-enter. 

If you're looking at the Refund Meter, you can't always go by that.  Sometimes it changes when you finish a section and Continue, but it may not have anything to do with what you just entered. Look at your actual Form 1040.  

In TurboTax Desktop, you can see it in FORMS mode.

In TurboTax Online, in the left-side menu, go to Tax Tools > Tools, then choose View Tax Summary from the pop-up menu.  Then back at the left-side menu, choose Preview My 1040.

Here's more info on Entering HSA/HDHP that may help you. 

@Peckkd