HSA 1099A amount not deducted from medical expenses correctly when passed to state return

[CindyKJA]

I am filing 2022 taxes with desktop TurboTax Deluxe. I have a HSA and received approximately $3,200 in funds for medical expenses. I did not contribute to the HSA this year. I entered the 1099-SA amount in the proper place. 

Then, the program instructs me to list my medical expenses, INCLUDING the items covered by the 1099-SA. It notes that you enter them all and the 1099-SA amount will be deducted from the expenses. 

For federal, it does not do anything with these numbers because I will be taking the standard deduction.

But, the gross medical expenses (including reimbursed items) are passed to my Arkansas state return as a medical deduction which is not correct. I BELIEVE THIS IS AN ERROR. I can fix it by removing the 1099-SA items from the medical expense section.  

[AmyC]

You are correct that the HSA reimbursed items are not a medical deduction for federal or AR. There are no known issues but you could have a piece of data stuck if you are using the online program. It is your tax return and only the tax forms are submitted, not the worksheets or background items. You can correct your return and submit using your method. 

You may want to see if you have data stuck. 

For stuck information follow these steps:

1. Delete the incorrect state form, see How to Delete  
2. Log out of your return and try one or more of the following:
   • Don't use Internet Explorer.
   • Clear cache and cookies,
   • Sign in using a different browser.
   • Sign in using a different device.
3. Log back into your return.
   • Enter the state program again.

[Opus 17]

What state are you in?  There are some states (I think) that do not allow HSA contributions to be tax-deductible.  If your contribution is not tax-deductible, then you are paying your expenses with money that was subject to state income tax, which makes it permissible to include the expense as a state itemized deduction. 

(Things get more complicated if you moved states, so that you have taxed contributions but are now in a tax-free state, or you have tax-free contributions and you moved into a taxable state.  We'd have to think about whether your deductions are legit in that case, and I'm sure Turbotax is not sophisticated enough for that scenario.)