'It says I can deduct all medical expenses on my state taxes (AZ). When I try it says I need to go back and itemize federal. Why?

[VolvoGirl]

To deduct on the state return you first have to enter them under federal even if you don't itemize on federal.  Most things get entered on Federal and flow over to the state return.  

Enter Medical under
Federal Taxes Tab or Personal (for H&B)
Deductions and Credits
Then scroll way down to Medical
Then Medical Expenses - click Start or Update

[saxon1974]

Ok thank you. I tried to do that, and it told me the standard was better for me, so I guess it wiped out everything I entered when it changed to standard deduction on federal. That's a pain. 

[VolvoGirl]

No it didn't wipe it out.  It just didn't use it.  It should still be there and can be used for state.  

[saxon1974]

I went back in as you suggested and added medical expenses then I go back to deductions and credits and it still says zero. It does ask me if I used the amount I entered on my 1099-SA was used for medical expenses which I answered yes but this amount I am trying to add as a deduction was money spent not using the HSA funds. 

[saxon1974]

Not sure what else to do. It tells me if I want to itemize my Arizona medical expenses to go back and enter the amounts for mortgage interest, taxes, charity and medical expenses in federal deductions, I go and do that but when I finish medical it always has zero dollars. Thus, when I go and try and enter this in the state return it has a zero in the field for medical expenses and I cannot change it. I am wondering If I am wasting my time here. We had about 2500$ in extra expenses we paid out of pocket so I would like to get those deductions for AZ. 

[BillM223]

TurboTax assumes that when you enter medical expenses on the federal schedule A that you enter ALL medical expenses, even expenses reimbursed by insurance or an HSA. Many people don't add medical expenses if they were reimbursed by insurance - they just add the unreimbursed expenses and are done with it.

That is all well and good except for two groups of people: those in state like Arizona that allow extended medical deductions, and those who use their HSAs.

OK, that is why you should do what Volvogirl suggests to enter all expenses on the federal return. The reason that you still get zeros is probably because of a feature of TurboTax that most people don't know about: (1) the taxpayer has to manually enter insurance reimbursements, but (2) the HSA reimbursement are automatically transferred to Schedule A. That is, TurboTax adds up all the 1099-SA distributions for medical expenses and transfers that amount to Schedule A as a reimbursement.

So, if you don't enter each HSA expense in Schedule A, you need to enter a single HSA expense as a Miscellaneous expense on Schedule A, the amount being the sum of all HSA distributions (the 1099-SA forms with distribution code of '1'), and the description being something like "HSA medical expenses". In this way, I am hoping your Schedule A won't zero out, and that Arizona does its thing...

[saxon1974]

Thank you. I figured out after a while that the reason it was zeroing out was that it was assuming the expenses I were entering were part of the HSA distributions so until I got above that amount it was ignoring them. I added some as individual self pay items and once the total was above the HSA distribution amount it was keeping them.   

TurboTax could be a bit more clear and have a message that says something like "If you entered expenses for HSA paid on your 1099-A in federal, you should still add that as a medical expense in additional to any self pay expenses" or something such. 

[BillM223]

There actually is such a screen, but (1) it's at the end of the Schedule A interview (people often exit the interview early when they have finished entering what they feel like they have entered all they have), and (2) I can't guarantee that all versions of the product have the same screen (I spend most of my time in the Windows desktop version).

And I agree that TurboTax could word even the screen I am talking about better.

However, it is what it is, and TurboTax - like all software - is a work in progress, even after so many years. Now if the IRS and the states would just stop changing things for a couple of years this could all be worked out (!).

Congratulations on your HSA intuition!