HSA ACCUMULATED Claims

[Ilay]

My HSA account opened on 2015 and I contributed $15000 so far. I have not claimed that cost since I opened the account. But I paid all my out of pocket medical expenses $3000  (for 2015 - 2018 years) + $7000 (for 2019 year )from my pocket not through HSA. Last year, I withdrew $10000 from HSA account.  I got a 1099 sa form for hsa credit and updated in the tax file. note: $10k is 12% of my  pay.

Should I update the all 4 years medical claims cost  $10k  under medical deductions or just  only $7000 cost for 2019 or ignore to report this on the medical deductions / reimbursements.

please advise on this.

[Opus 17]

What do you mean, you have not claimed the cost? Do you mean that you have not reported making deposits to the HSA and have not claimed the tax exemption?  Or do you only mean that you have not previously made withdrawals for medical expenses?

[Ilay]

I have not claimed any hsa refund from 2015 to 2018 for $3000. For 2019, I did hsa claims all medical expense which includes $3k + 2019 medical expense.  Should I report just only 2019 claims or all hsa claims / previous year claims  to tax deduction?

Note: my 1099 shows $10k withdrawal for 2019.

[Opus 17]

You may use HSA funds to pay any medical expenses that occur after you opened the HSA. Reimbursement does not have to be timely. If you have had more than $10,000 of out-of-pocket medical expenses since you opened the account, then in TurboTax you can check the box that says “I used all of this withdrawal to pay medical expenses.”  The withdrawal is not taxable.

[Ilay]

Thank you. I checked the checkbox while I enter 1099 sa details under tax credit section. Apart from this, do I need to explicitly enter the medical expense cost like $10k under deductions section or leave them as default or blank as it updated in the credit section. 
please confirm.

[BillM223]

If I understand the question...

First, you report the entire $10,000 as a distribution in 2019, no matter what years the $10,000 came from.Once the contributions are in the HSA, it's just a big pot of money with no clocks.

Second, it is counter-intuitive, but you may probably need to enter the HSA distribution into the Medical Expenses interview for Schedule A. 

Ordinarily you would not try to deduct HSA distributions on Schedule A as an Itemized Deduction. However, TurboTax automatically subtracts the amount of HSA distributions from what you report on Schedule A Medical Expenses, so you need to put in a placeholder for HSA covered expenses on Schedule A.

In the miscellaneous medical expense page in the Schedule A interview, add a line that says "HSA covered expenses" and $10,000.

The reason for this is because TurboTax assumes that you have entered ALL medical expenses, included those covered by insurance and HSAs. That is why you are asked about insurance reimbursements. The problem is that you don;t see TurboTax doing the same thing with HSA reimbursements, so you don't think of it.

[Ilay]

Thank you. I did that in the misc medical expense section on schedule A but I entered only the HSA claims not the insurance paid cost or total medical cost. If HSA entry section automatically update the schedule A for HSA claims cost then I won’t add it again to avoid further confusion. I like the automatic alignment.

[BillM223]

That sounds correct.

Examine your Medical deduction in Schedule A (if any) to make sure that it says the amount that you think it should say. That is, if you made payments for qualified medical expenses (not reimbursed by HSA or insurance) in excess of 7.5% of your Adjusted Gross Income (AGI), did that excess amount appear on your Schedule A or medical expenses worksheet?

[Opus 17 · Accepted solution]

You aren't required by the program to enter your medical deductions to qualify the HSA.  While it is true that the program wants you to enter all your medical expenses, then enter all your insurance and HSA reimbursements (on the theory, I suppose, that the computer is smarter than the taxpayer); it isn't required for the HSA.  Checking the box that says "I used all the HSA for medical expenses" is sufficient.

Additionally, if the taxpayer here enters all $10,000 of medical expenses as itemized deductions, that will result in an illegal excess deduction.  The only expenses you can deduct on your 2019 return are expenses actually paid to the provider in 2019.  However, HSA reimbursement can go farther back, as long as the expenses were not previously reimbursed from some other tax-free source.   In particular, this taxpayer's income is $83,000 according to them.  They paid $7000 in 2019 and $3000 from 2015-2018.  Using the 7.5% floor on medical expense deductions, they would normally have an $800 deduction for 2019, but claiming all 2015-2019 expenses on the 2019 return will give them an excess and unallowable deduction of $3800.  

[Ilay]

Thank you and I am good for the update. I leave it to system that takes care once I say yes for “all expense used for medical” upon 1099 sa for entry