1099-sa

[profnielsen]

My 1099-SA has a gross distribution of 3xxx.xx. It is normal distribution (code 1). I called the HSA. It says it is not taxable income, but my Turbo Tax software lists it as income. Why is it being listed as taxable?

[JohnB5677]

When you go through the posting of the 1099-SA there is a final check box that indicates that it was all used for Medical Purposes.  If this box is not checked it will result in the HSA distribution being taxable.

This will be posted under:

• Wages & Income
• Less Common Income
• Select 1099-SA
• Select the type of plan
• Continue through the interview
• When you get to Did you spend your HSA money on medical expenses only? Say Yes.

[profnielsen]

I did check that box Yes, I used it all for medical expenses. But it still shows up as income on the summary income sheet. 

[JohnB5677]

Is it possibly double posted.  If the HSA is reported on your W-2 it does not have to go anywhere else in the program.  It would show as an over contribution.

You can check it at:

1. Go to the Federal tab, and choose Deductions and Credits
2. Scroll to Medical, and under HAS, MSA Contributions, choose Revisit.
3. On the screen Tell us about the health-related accounts you had in 2020, uncheck the box for Health Savings Account (HSA)
4. Continue, and on the screen What type of High Deductible Health Plan did you have on December 1, 2020? check None.
5. Go back to Medical, and on Medical Expenses click Start.

[profnielsen]

I did the deductions and credits as you said. It still appears on income on the wages and income.

[BillM223]

"It still appears on income on the wages and income."

Are you talking about on the TurboTax Wages and Income screen in the Step-by-step interview? 

It is confusing, but these summary screens in TurboTax reflect what you entered, not necessarily how these amounts are treated tax-wise.

What matters is whether or not this 1099-SA amount appears on line 8 (Other Income) of Schedule 1 (1040).

The way the 1099-SA works is that when you enter this amount in the HSA interview, it briefly appears on line 8 of Schedule 1. This is because the IRS considers these distributions to be taxable by default.

However, when a screen or two later, you indicate that all the distribution was for qualified medical expenses (as John said), then TurboTax realizes that it is not taxable and removes it from Line 8 on Schedule 1.

However, this amount will always appear on the Wages & Income Summary because it reflects your entry, not your tax.

Always double-check what's on your actual tax return, if in doubt.