HSA Distribution Question

[johnsoltysiak]

My 2016 HSA distribution was used to pay for medical expenses for previous years. TurboTax is assuming that my 2016 HSA distribution is being spent on expenses in 2016 and is subtracting the HSA distribution amount from my total 2016 medical expenses. How do I tell the system the 2016 HSA distribution is not being used for 2016 medical expenses?

[dmertz · Accepted solution]

To offset TurboTax's assumption that the medical expense paid with the HSA distribution was a medical expense incurred in 2016, increase the amount that you enter as your medical expenses by the amount of your 2016 HSA distribution that was used to cover medical expenses incurred after the establishment of your HSA but before 2016.  (You are not permitted to have included this amount on Schedule A of an earlier year.)

[Opus 17]

What matters is this: you can only use an HSA to pay for expenses that were incurred after the HSA was opened.  If you had the HSA when the procedures took place, then it doesn't matter if the procedures took place in a different year from the withdrawals.  However, if you only opened the HSA after the expenses occurred, then they are not qualified expenses, and you should not check the box that says so.  You would owe tax plus a penalty on the non-qualified withdrawals.