Hi, I enter my HSA qualified medical distribution with box 3 code 1, but Turbox tax still treat it as income and taxed the distribution ? why?

[hqiuem]

when I changed amount of distribution, I can see my tax got changed. the qualified distribution is tax free, why it impacts my tax ?

[MindyB]

In order to correct this, after you enter your 1099-SA, you'll be asked in the interview if you spent the money on medical expenses. Answer "yes". Continue through the interview until you reach the page asking if you were covered by a high-deductible plan.  Here, indicate the period of time you were covered by an HSA.  

[hqiuem]

I did exactly as you mentioned, but the distribution still impacts my tax. how I know? when I changed amount of the distributions, my tax got changed. why ?

[MindyB]

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:

TurboTax Online:

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen.
3. A drop-down will appear. Select Tools
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent” *
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number (including the dash) that was generated in the response.

*(If using a MAC, go to the menu at the top of the screen, select Help, then, “Send Tax File to Agent”)

[hqiuem]

Token: [phone number removed][phone number removed]6

[hqiuem]

token: 13563578190883649-43985496

[hqiuem]

I sent out token number, please let me know if you need more info

[VolvoGirl]

The filter ate your token number.  You can post a screen shot of it.  

[hqiuem]

[dmertz]

If you are itemizing medical expenses on Schedule A, when entering your medical expenses under Deductions & Credits you must include those paid with distributions from the HSA.  TurboTax automatically subtracts the amount paid with distributions from an HSA and then puts only the remainder on Schedule A.

[MindyB]

Thank you for providing your token. 

I have uncovered the issue.  You are itemizing your deductions, and eligible for medical and dental expenses.  Since you have used HSA funds for some medical expenses, that amount will be removed from the deduction.  So, if you increase the HSA expenses, itemized medical expenses go down, and tax due goes up, and vice versa. 

To make sure you are getting the full deduction you are entitled to, enter your medical and dental expenses in total.  The system will subtract the HSA withdrawals.

[hqiuem]

okay, thanks