HSA distributions used for medical expenses are being included in income

[schemegreen]

I am using the Turbo Tax app on my phone. I have entered distributions from a 1099-SA that were used to pay qualified medical expenses and have correctly checked the option to indicate that the distributions were used for medical expenses, but they are still being included in income. I have reviewed my entries at least 10 times. What do I need to do to get rid of this income?

[BillM223]

Is the distribution code (box 3) set to 1 in the 1099-SA or to some other value?

When do you see that the Distribution (box 1) on your 1099-SA has been added to your income? At the end, or while you are still in the HSA interview. Specifically, in the HSA Summary at the end of the HSA interview, what are the "Total Distributions" and the "Taxable Distributions"?

[schemegreen]

In the HSA Summary, the total distributions are $3000 and the taxable distributions are $0. But in the income summary, it shows income from 1099-SA, HSA, MSA as $3000.

[BillM223]

OK. We need to establish if the $3,000 is showing up on your tax forms, specifically on line 8f of Schedule 1 (1040). If it does not appear on Schedule 1, then you are OK.

There are various screens like Income summary and Deduction summary that are not real tax forms. If this is the case, because the distribution on the 1099-SA is potentially taxable, they put it on the Income summary (not tax form) and didn't remove it when you entered the fact that the distribution was all for qualified medical expenses.

So long as your actual tax forms are correct, you are good to go.

[schemegreen]

I have proceeded to look at the tax forms. There is income being calculated for my husband in Part III of Form 8889. He does not have a separate HSA account, so I don't know why there is a form for him. My form has no income in Part III.

[BillM223]

It sounds like you have entered things under the wrong person. For example, when you entered the 1099-SA, were you sure to enter it under his name?

Part III in the 8889 is for special cases like Failure to Maintain HDHP coverage. If your spouse really doesn't have an HSA, this is unlikely.

[schemegreen]

Today I logged back into the app to review my entries for the 1099-SA. I did not change anything, but there is no longer taxable income for this section.