HSA distribution

[mil8tem]

I took an HSA distribution in 2019 for medical expenses incurred in 2018 that were NOT itemized.  TurboTax program is using that amount against my itemized 2019 medical expenses to reduce them.  How does that get fixed?

[VictoriaD75]

You deduct medical expenses in the year paid, not the year incurred. If you are using an HSA to pay for medical expenses, you cannot also deduct the medical expenses as itemized deductions. You have already received the tax benefit of the HSA contribution.

When you report your 1099-SA, indicate that the funds were used for qualified medical expenses. It should not ask the year incurred. Where are you encountering this error?

[mil8tem]

Error occurs in the Medical deductions worksheet; the program inputs the HSA distribution as a reimbursement for 2019 medical expenses when in fact the HSA distribution was for 2018 medical expenses that were NOT being itemized (the standard deduction was taken in 2018)

[BillM223]

In your case, this is not a problem. Since you took the standard deduction in 2018, you do not have to worry about the effect of TurboTax appearing to use these 2018 expenses in 2019.

You should make an entry on Schedule A that matches the HSA distributions, to offset the automatic transfer of the distributions against medical expenses on Schedule A.

For example, near the end of the Medical Expenses interview, you can enter a single line item under Miscellaneous called "expenses reimbursed by HSA" with the amount from the 1099-SA(s).

You are correct that some of the HSA distributions were for prior year expenses. And you may think it incorrect to show medical expenses on Schedule A for prior year expenses, just to offset the HSA distributions. 

But the fact is that this HSA entry on Schedule A is not going to be part of the return. All you are doing is adjusting the medical expenses entered to compensate for the HSA distributions so that the final Schedule A number for 2019 will be correct.

Since TurboTax does not know how much of the distribution was for a prior year, it just subtracts all of them on Schedule A in the belief that you will compensate appropriately on Schedule A.

Go ahead and enter the compensating entry as an other medical expense in Schedule A with the total amount of the HSA distributions in 2019 (for all years) - your return will be correct.

If you are concerned about doing this, just keep notes of why you did what you did in the very unlikely chance that the IRS will ever write to ask about this.