HSA Distributions reducing medical deduction

[Bart Az]

Turbotax deducted from my listed medical expenses the amount of the HSA distribution I took in 2022 . This distribution is for medical expenses incurred in 2018. In that year I took the Standard Deduction so I am still eligible for reimbursement from my HSA even though it is years later.

The Fix:  Turbo Tax needs to ask if this distribution is for any of the medical expenses listed. If the answer is "No" then the program should not reduce the current medical expenses entered.  They could also add a warning that if the medical expenses being reimburse are for a prior year, then for the HSA distribution to be non-taxable those expenses must not have been listed as a deduction in the tax year incurred.

Please fix this. A long time user

[CatinaT1]

Generally, your 2018 medical expenses are not deductible in 2022 unless you paid them in 2022. Medical expenses are deducted in the year they were paid, not when they were incurred.

Please see IRS Publication 502 for more information.

For information on how expenses are reimbursed with an HSA and how they are entered in TurboTax, please see Opus17's response below.

[edited 2.20.23 | 9:17am]

[Bart Az]

In this case, the medical expenses from 2018 were personally paid by me in 2018, and I was not reimbursed from my HSA. The Standard Deduction was taken 2018 and therefore the medical expenses were not used as a deduction. 

In 2022 I took a distribution from my HSA covering a portion of the 2018 medical expenses I paid for back in 2018.

So, when TurboTax automatically reduces my current paid 2022 medical expenses by the amount of the HSA distribution I believe it does so in error. Any help on getting TurboTax to fix this would be appreciated

Here is the language from my HSA: (at JPM at the time)

If you don't use your HSA to pay for a qualified medical expense (i.e., you pay using another source), simply reimburse yourself later via direct deposit from the HSA website or by using your HSA card to withdraw cash at an ATM. You won't need to submit any receipts for approval, but it's important to keep your receipts for all expenses for tax and record keeping requirements.

Remember, as long as your HSA was open when you incurred the expense, you save the receipt and it was not otherwise reimbursed, you can reimburse yourself for the expense even years later, there is no time limit.

[Opus 17]

TurboTax has always behave this way. Instead of asking you to list your deductible expenses that have not been reimbursed, it wants you to list all of your expenses and all of your reimbursement so that the program can calculate it for you.  You will have to increase your deductible expenses for the year by the amount of the prior expense, so that you can get the program to calculate correctly.

[Opus 17]

@Bart Az 

Also note that you are only allowed to use your HSA to reimburse past medical expenses that occurred after the HSA was opened.  If you did not have the HSA in 2018, you can’t use it now to reimburse those expenses.

[Bart Az]

I get what your are saying about the work around but it seems quite odd that Turbo Tax would want you to list items that are not deductible on the itemized deduction schedule. There are many items that are HSA reimbursable but are not deductible on the itemized  deduction schedule. Turbo Tax should be better than this. 

I am disappointed in them to say the least.

[DawnC]

List the total amount of your HSA reimbursement of 2018 expenses as one line item in the Other Medical Expenses category.  You won't need to worry about breaking it down item by item.    You already have records of these expenses from when you requested the reimbursement, so just keep that info with your current tax return.   

You can use HSA funds to pay for deductibles, copayments, coinsurance, and other qualified medical expenses.  Qualified medical expenses are those expenses that would generally qualify for the medical and dental expenses deduction. These are explained in Pub. 502, Medical and Dental Expenses.

Amounts paid after 2019 for over-the-counter medicine (whether or not prescribed) and menstrual care products are considered medical care and are considered a covered expense - another reason to list the reimbursement as one line item.