Be sure you told the program that all distributions were spent on qualified medical expenses.
Unless you see the amount on Form 1040, Schedule 1, line 21, it's not taxed. Also, on Form 8889, line 16.
The taxable income is showing up on Line 21 of Schedule 1 and Line 6 of Form 1040. I checked "yes" that the entire distribution was a qualified medical expense but Line 15 of Form 8889 shows no qualified medical expenses.
I deleted the entire 1099-SA and then re-entered it, checking "yes" that it is all a qualified medical expense. It still shows as taxable income. I'm convinced that there is a bug is the software.
Yes, online software. Purchased it in mid-December and have installed all updates.
So the software was downloaded to your computer? Not an online version via a browser. Just need to clarify. Asking around.
As you have probably read, when you add the distribution on the 1099-SA, your distribution is temporarily added to Other Income, because by default, the IRS considers the distribution to be taxable income until on the next screen you tell TurboTax that the entire distribution was for qualified medical expenses.
However, TurboTax does not remove the distribution from Other Income until the next screen after that, and it is possible that if you jump away from the HSA interview too quickly on that next screen, the recalculation (removal of Other Income) never takes place.
It can happen that TurboTax can hold on to amounts even when you think you have deleted them. This is an example. Once the recalculation doesn't take place, the Other Income doesn't ever go away, even when you repeat the HSA interview.
So you need to delete all your HSA information from your return(see below) and then restart your HSA interview. Please make sure that you go to the end of the HSA interview so that all the proper calculations and recalculations are done.
***Delete HSA Information***
The safest - although brute force - way to fix this is to do the following in this order:
1. make a copy of your W-2(s) (if you don't have the paper copies)
2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen
*** Desktop***
3. go to View (at the top), choose Forms, and select the desired form. Note the Delete Form button at the bottom of the screen.
*** Online ***
3. go to Tax Tools (on the left), and navigate to Tools->Delete a form
4. delete form(s) 1099-SA (if one), 8889-T, and 8889-S (if one)
5. go back and re-add your W-2(s), preferably adding them manually
6. go back and redo the entire HSA interview.
Thanks for the suggestion. I followed your instructions and deleted the various forms and then went back and re-entered the data and re-did the HSA interview. Unfortunately, the result was the same. The HSA distribution is still showing as taxable income. Any other thoughts? I should mention that I purchased and downloaded the software back in mid-December.
Thank you for getting back to us. I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below when using TurboTax Desktop:
1. Click into your return.
2. Click Online and select "Send Tax File to Agent".
3. This will generate a message that a diagnostic copy will be created. Click on OK, the tax file gets sanitized and transmitted to us.
4. Please respond with the Token Number that was generated.
papabear, have you updated your desktop software? There was an issue that was fixed in the middle of December, but it didn't occur to me that anyone still had that old software.
Do us a favor and do what TurboTaxHols told you to do first. Then if you haven't updated your software (at the top, click on Online, then Check for Updates). Then reopen your return, delete your HSA information, and try it again...and then please come back and tell us what happened.
I updated the software each time I was notified that an update was available. I have sent a diagnostic copy of my return. The token number is 496373.
@papabear I have looked at your tax return, and the good news is that your HSA distribution is not being counted as taxable income (Line 21 on Schedule 1 is blank). When you did the delete and re-add on my suggestion, did you go and look at line 21 again, or are you looking at the Wages & Income screen, where the HSA distribution is listed? Also see line 16 on your 8889 where the taxable HSA distribution is zero. It is confusing but the HSA distribution is listed at the top of the Wages & Income screen because it MIGHT be taxable, not because it necessarily is.
Thanks for looking at the return. It's puzzling that things look OK from your perspective. When I open my return, it still shows the HSA distribution on line 21 of Schedule 1 for some reason. I purchased and downloaded the software on December 13. You had mentioned earlier that there was an issue that was fixed in the middle of December. Is it possible that I missed that fix even though I have downloaded and installed any updates since the purchase? I'm thinking that maybe my best bet is to delete the current software on my computer, download and install the latest version and then start my return again from scratch. Please let me know what you think.
I am puzzled, too. It really does look great on my desktop - and I didn't make any changes to your return, just went straight to view the Forms.
This does suggest that there is a problem with the software you are running on your desktop. If you can download the software again without paying, please do, and if they want you to pay again, we'll see if TurboTaxHols can help.
I'll try downloading the software again. Hopefully, that will do the trick. I'm pretty sure I can do that without paying a second time. I really appreciate all your help. I'll get back in touch with you to let you know how things turned out.
Great! I am off the the evening but TurboTaxHols may still be here. I look forward to hearing from you.
Unfortunately, the news is not good. I went to my TurboTax account and accessed my downloads. I downloaded the software (TurboTax Deluxe Tax Year 2018 Mac Download with State) to replace the version I had on my computer. I assumed that the download would be the latest version of the software. When I then opened my return, however, there was no change. The HSA distribution was still showing as taxable income on Schedule 1. I did it a second time with the same result. I then took the bold step of deleting the 2018 software from my computer and purchasing a new version of the software (for $69.99). I downloaded and installed it thinking it would certainly solve the problem. To my dismay, however, it did not. I'm really at a loss as to next steps. Is it possible that there is a bug in this particular version of the software? Any thoughts or suggestions would be appreciated.
I'm very sorry to hear this, but I ensure you that the file you provided is showing no amounts on Line 21 of Schedule 1 when we reviewed it. Since your experience is still different, you'll have to contact our support team by going here: <a rel="nofollow" target="_blank" href="https://support.turbotax.intuit.com/contact/">https://support.turbotax.intuit.com/contact/</a> Select your product (CD/Download Mac), your edition ( Deluxe), ask for update help, then select Continue.
On the following screen, enter your contact info, then select Get the phone number.