I had an HSA with Optum bank through my previous employer. Then I switched to a new employer in 2022 who created a new HSA with Optum bank as well. Next, I requested Optum bank to consolidate both accounts but Optum bank in reality closed the first one and sent me a check. So I called in again and asked to void and apply the check amount to the new HSA. Unexpectedly, I just received an 1099-SA due to the account closure withdrawal check. Now, what do I do with the 1099-SA in the tax return?
Technically, the distribution is not spent but deposited back to my new HSA account. Should I expect another form for the deposit amount or select something else when filing the tax return?
Type '1099-SA' in the Search area, then click on 'Jump to 1099-sa' to get to this section.
Enter the info from the 1099-SA, Continue, and choose Distribution Code 2 for Excess Contributions.
Say NO the amount was not deducted from your wages.
Continue and enter the amount on your 1099-SA as a Contribution you made.
Indicate you were covered by a HDHP Health Plan.
Say NO you did not overfund your HSA in 2021.
The income will not be taxable and will be shown on Form 8889 as a Contribution/Rollover.
You may not receive any other form for the Contribution.
Thanks for the timely response. I took a closer look at the 1099-SA and the box 3 Distribution code is labeled as 1, not 2. Should I ask Optum bank for a corrected form?
If Optum Bank did indeed rollover one of your HSA accounts to another, then they should have sent you a 1099-SA with a distribution code of '1'.
To enter this 1099-SA, please do the following:
A rollover from one HSA to another is shown by form 1099-SA. However, since there is no code for rollover on form 1099-SA (unlike on a 1099-R), you have to take an extra step to tell TurboTax that this 1099-SA is in fact a rollover.
For background, please read "Rollovers" on page 8 in Pub 969.
Thanks for the clear answer.
I just talked to Optum bank and their representative told me they will generate a corrected 5498-SA for the new HSA account with the box 4 rollover contribution filled with the check amount (the current one is 0). Does TurboTax also take the 5498-SA as input to figure out the rollover between HSA accounts?
No. You do not need to enter anything from the 5498-SA into TurboTax (better worded: "you can't enter the 5498-SA into TurboTax").
Just follow the process I described above - probably using a 1099-SA that you already have - to tell TurboTax about the rollover.
On page 8 of the Pub 969, "Note. If you instruct the trustee of your HSA to transfer funds directly to the trustee of another of your HSAs, the transfer isn’t considered a rollover. There is no limit on the number of these transfers. Don’t include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889."
If Optum Bank ends up giving you a check after all (making this a rollover after all), tell them to deposit it into the new account as a ROLLOVER (this is important so they get their paperwork right), then enter the resulting 1099-SA (which you may already have) as I described above. The rollover amount should appear on line 14 of your 8889 (that is the 8889 of the spouse who did the rollover).
Does this sound good?