Expenditures from HSAs are not taxable income, absent a situation with an over-contribution, which I don't have. All of the worksheets look good--the worksheets show $0 in taxes owed on the 2020 distribution (which was used for ordinary medical expenses--which is also essential to preserving the not-taxable-income). YET: to test this, I ran my taxes without the HSA distribution, and when I do that, my refund goes up a few hundred dollars (in an amount equal to 11.9% of the HSA distribution). Because my refund goes down when I include the HSA distribution and form 8889, this means that TurboTax is calculating and including a tax that I'm paying on the HSA distribution--which is incorrect. So what am I missing?
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If you're being taxed on your HSA and related forms, you may not be completing the TurboTax interview questions till the end.
See Why is my HSA distribution taxable? and Why am I showing an excess HSA contribution in 2020?
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