Hi,
I have HSA 1099-SA form with 5700 gross distribution in 2021 tax year, shown in form box 1, and box 2 has 0.00 in there.
when I typed this 5700 into turbo tax, my federal tax due jumped up by 2000 dollars, I thought HSA money distribution from my health expense claim will be tax free, isn't that true? Thanks!
Yes, if you used this money on qualified medical expenses then this distribution should be tax-free. If it was not used for that, you pay tax on the distribution as well as a 20% penalty. To make the distribution tax-free, you have to indicate it was used for qualified medical expenses:
Yes, if you used this money on qualified medical expenses then this distribution should be tax-free. If it was not used for that, you pay tax on the distribution as well as a 20% penalty. To make the distribution tax-free, you have to indicate it was used for qualified medical expenses:
I have a question in a scenario where I did not use any of my HSA funds. In the question do I respond 'Yes' even though no funds were used for the year?
The IRS assumes that such distributions are, by default, taxable - this is why your tax increased. HOWEVER, on the next screen, you would be asked "was this distribution used for medical purposes?" When you answer "yes", then the distribution becomes a qualified distribution, and it is removed from your taxable income.
This is a good reason not to watch the Refund Meter too closely.
"In the question do I respond 'Yes' even though no funds were used for the year?" Which question are you referring to?
If it is the question: "Did you use your Health Savings Account (HSA) to pay for anything in 2023?", then answer "yes" only if you actually did.
If it was another question, please add it here. Remember that we in the Community cannot see your private tax data nor the screen you are on, so help us help you.