Per IRS publication 669:
Qualified HSA funding distribution
A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA.
The maximum qualified HSA funding distribution depends on the HDHP coverage (self-only or family) you have on the first day of the month in which the contribution is made and your age as of the end of the tax year. The distribution must be made directly by the trustee of the IRA to the trustee of the HSA. The distribution isn’t included in your income, isn’t deductible, and reduces the amount that can be contributed to your HSA. The qualified HSA funding distribution is shown on Form 8889 for the year in which the distribution is made.
You can generally make only one qualified HSA funding distribution during your lifetime.
This is not reflected in TurboTax when entering a 1099-R from the Roth IRA that was transfered (distributed) to my HSA. Instead, TurboTax is treating it as income, and thus taxing it. This amount should be reflected on form 8889, line 10 – but it is not. I can confirm this by switching to Forms mode seeing the line is blank.
What is the fix to correct this? Do we need to contact the development team to report a bug?
