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HSA Distributions


HSA Distributions Forms and Rules

 Form 1099-SA reports a taxpayers total distributions reported from an HSA during the year

 If the distributions are used towards qualified medical expenses, the distributions are tax-free.

 Qualified medical expenses include:

  • Hospital and doctor bills, prescription medication, etc.
  •  Insulin qualifies without a prescription  
  • Over the Counter medication qualifies with a prescription

 A taxpayer cannot treat insurance premiums as qualified medical expenses unless the premiums are for:  

  • Long-term care insurance  
  • Health care continuation coverage
  •  Health care coverage while receiving unemployment compensation  
  • Medicare and other health care coverage if the taxpayer was 65 years old or older (does not include premiums for a Medicare supplemental policy, such as Medigap

If the distributions are used for other reasons, distributions are included in Other Income

  • Other income reported on Schedule 1, Part 1, Line 8a –> Form 1040, Line 7A

 Distributions used for something other than a qualified medical expense will be subject to an additional 20% tax;

  • Tax reported on Schedule II, Part II, Line 8 –> Form 1040, Line 15

There is an exception to the 20% tax IF:

  • The distribution was made after the taxpayer died, became disabled, or turned 65

HSA Distribution Codes and TaxSlayer Entries

Form 1099-SA will typically list a distribution code to provide more information. Most taxpayers will only have Code 1, but it is helpful to reference the list below for the IRS exam.  Distribution Codes:

 1—Normal Distributions

2—Excess Contributions  

3—Disability  

4—Death Distribution  

5—Prohibited Transaction

 6—Death Distribution after year of death to a non-spouse beneficiary


Entering HSA Distributions in TaxSlayer

 HSA Distributions are entered in on the same page in TaxSlayer as HSA Contributions  Deductions –> Adjustments –> Health Savings Account Form 8889

You only need to enter the total amount of distributions, and the total amount of distributions used for qualifying medical expenses. These will often be the same amount.