HSA: Refund up after 1099-SA?

[mark-mcnamara2]

My refund went up after I entered in my HSA distribution details.  They were all for qualified medical expenses but I don't understand what would cause my refund to increase.  This money was already contributed to the HSA account pretax which is where I thought the tax advantage occurred.  How then does my refund go up after entering in my 1099-SA info?  I could see it going down if I took some non-qualified distributions but not up.

[TaxGuyBill · Accepted solution]

Were the HSA contributions through your employer?  They would be listed as code "W" on your W-2  If so, TurboTax is probably doing it correct.

When you enter your Code "W" on your W-2, TurboTax automatically assumes that you did NOT qualify to contribute to the HSA, so it adds taxes and gives you a penalty.

Later in the interview, when you answer questions about the HSA (such as having a High Deductible Health Plan, and not having Medicare or other insurance), that lets TurboTax know that you DO qualify for the HSA contribution. It then removes the tax and penalty it gave you when you entered Code "W" on your W-2.  Therefore your refund goes back up.

When you say all of the medical distributions on the 1099-SA were used for Medical Expenses, it removes the penalty for non-qualified distributions.

Does that make sense?

[k_droysen]

Still gives me a penalty, apparently doesn't think I qualify still

[porapriya]

I missed the screen that said "Did you spend your HSA money on medical expenses only?" FOUR times before I figured out why I was getting penalized.  I don't remember selecting "No" so I'm going to say I'm pretty sure that was defaulted.  This almost cost me hundreds of dollars.  TurboTax REALLY needs to question the user if they claim 100% of their 1099-sa deductions are listed as not being medical, I mean who would do that?

[kcemon]

I entered the information in correctly and it still calculates taxes and penalties even though I used the entire distribution for approved Medical costs.  The worksheet and forms show no tax liability I think you have a bug in your softward

[HelenaC]

Make sure you entered your employer contributions properly: Where do I enter my HSA contribution? On the Let's enter XXX HSA contributions screen, make sure Any contributions you personally made has a zero ($0). See the screenshot below.

Please click on Why is my HSA distribution taxable?

Also, click on Why am I showing an excess HSA contribution?

Other possible reasons why your refund amount may increase:

Another reason your refund may have gone up after you entered your Form 1099-SA is because a Health Savings Account (H.S.A.) can have up to three parts where you have to enter amounts and the way TurboTax does the calculations. 

Part 1: When you enter your W-2, the amount in box 12, H.S.A. contributions, will be included as miscellaneous income (Form 1040 Line 21), be added into you taxable income plus a 6% excess contribution tax penalty will be added.

Part 2: When you enter your Form 1099-SA, your refund will decrease until you answer 'Yes, I spend the full amount on medical expenses'. The refund will go back to the amount before you entered your Form 1099-SA.

Part 3: TurboTax generates Form 8889 and you have to complete the questions so the the contributions on your W-2 are eligible and not taxable.  When you answer that 'Yes, I was enrolled in a HDHP as of December 1, 2015' and 'Who was covered by this HDHP?' , your refund amount will increase or your amount due will decrease.

If the Part 3 questions are answered right after you enter your Form 1099-SA, it appears that that form caused your refund to increase.

Click on IRS Publication 969 Health Savings Accounts and Other Tax-Favored Health Plans  . 

[Answered edited 3-5-16 1:42 pm PST]

[mark-mcnamara2]

That is not what happened though.  The refund amount was greater after finishing the 1099-SA section than it was before even entering it.  This was before I was in Deluxe mode and still in the free mode.  Perhaps turbo tax doesn't even consider the money contributed to the HSA as tax deductible until you upgrade to the version that allows for HSA?

[gregshurter]

Same situation for me.  It did as Helena C mentioned above...  went down, then went up to the original refund amount.  But once I answered that I had a high deductible health plan (HDHP), it went up significantly.

Another response to a similar question that I found said that turbo tax incorrectly thinks you owe the tax if your w-2 shows a W in box 12, thinking you don't qualify for tax-free treatment on these contributions to your HSA.  It's only after you confirm that you have a HDHP when entering your 1099-SA info that turbo tax realizes you DO qualify for tax-free treatment.