Question

I have a 1099-SA showing a gross distribution which should be taxed, but Turbo tax does not ask if it was spent on medical expenses, and assumes it was. How do I correct?

Forum|Forum|2 years ago
March 31, 2024
1 reply
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I see the error in TT form 8889 line 14b, how can I correct it?

TurboTax Online

No, you will need to correct your entries by going back to the section in TurboTax to review your entries. Open or continue your return in TurboTax.

Select Search and enter 1099-SA.
Select Jump to 1099-sa.
Answer the questions and continue through the screens.
After you enter your 1099-SA, we'll ask Did you spend all the money you took out on medical expenses?
This is where you need to say NO

You will need to enter the amount that was not used to pay for qualified medical expenses. This amount will become taxable income and will be reported on Form 8889, line 16 and Schedule 1, line 8. The program will calculate the additional 20% penalty that will be reported on line 17b of your 8889 and Schedule 2, line 8.

J

Jc1benderAuthor

That does not seem to work. I received 2 1099-SA forms on the same HSA account. The one that was for a medical expense asks the question Did you spend all the money you took out on medical expenses? But the other, with a distribution code of "2" does not ask the question. Code 2 is Excess contributions. Late in 2022 I started medicare and my contributions for the previous 6 months were refunded to me in 2023 with a code of 2. The HSA company said I would simply be taxed on it as income in 2023. But Turbo Tax does not ask the question if it was used for medical expenses, I suspect because of the distribution code 2. I seem stuck. Thank you for your help, much appreciated.

B

BillM223

Don't worry, you are not stuck.

When you are in the HSA interview and an excess in contributions is detected, then the excess is immediately and automatically added back to Other Income if the contributions that were in excess were from the code W amount , i.e., "employer contributions". These are not necessarily from the employer but are added to your contributions by means of payroll deduction - the reason they are called "employer contributions" is because they are treated the same way. The code W amount is removed from Wages in boxes 1, 3, and 5 before the W-2 is printed, hence the employer contributions in excess must be added back to income.

OK, so the 1099-SA with a distribution code of 2 in box 3 doesn't need to add the excess to income, because it already got done. The only income that this 1099-SA adds to your income is the earnings in box 2.

So on the 1099-SA:

1. Box 1 excess amount

2. Box 2 earnings amount

3. Box 3 distribution code

When box 3 is '2', then box 2 is added to income, and box 1 is ignored.

When box 3 is '1', then box2 is normally empty (and ignored anyway), and box 1 is added to income IF YOU SAY THAT IT WAS NOT FOR QUALIFIED MEDICAL EXPENSES. Of course, it is usually for qualified medical expenses, so the box 1 amount is transferred to the appropriate line on the 8889.

Does this work for you?

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