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My wife inherited her brother's HSA account after his passing in October & received a check dated January 17th. Should that amount be declared on this year's tax return?

Forum|Forum|3 years ago
February 22, 2023
3 replies
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She opted to cash it out but received that check after the new year. She was told by someone that it needed to be declared on the 2022 return which had already been submitted to the IRS and accepted.

TurboTax Deluxe Online

Best answer by Cynthiad66

The balance of the account will be distributed to the beneficiary and becomes taxable to them in the year you pass away.

You report the taxable amount on the “other income” line of your tax return and write “HSA” beside it.

Since you have filed already you will need to amend that tax return. Wait to amend until that original return has been processed.

If you used TurboTax Online, simply log in to your account and select “Amend a return that was filed and accepted.” If you used our CD/download product, sign back into your return and select “Amend a filed return.

This is reported as "Other Income"

@captainugly01

B

Bsch4477

Employee

Since it was received in 2023 it should be reported on her 2023 return.

C

captainugly01Author

That's what I thought but she wanted me to double check. Thank you!

B

Bsch4477

Employee

I was wrong. As described in the other posts, the HSA is to be reported in the beneficiary’s return in the year of death.

C

Cynthiad66Answer

The balance of the account will be distributed to the beneficiary and becomes taxable to them in the year you pass away.

You report the taxable amount on the “other income” line of your tax return and write “HSA” beside it.

Since you have filed already you will need to amend that tax return. Wait to amend until that original return has been processed.

If you used TurboTax Online, simply log in to your account and select “Amend a return that was filed and accepted.” If you used our CD/download product, sign back into your return and select “Amend a filed return.

This is reported as "Other Income"

@captainugly01

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Carl11_2

Employee

The recipient of the funds will be receiving a 1099-R from the payor. If the payout was in 2023, then the 1099-R will not be issued until tax filing time next year.

O

Opus 17

Employee

@Carl11_2 wrote:

The recipient of the funds will be receiving a 1099-R from the payor. If the payout was in 2023, then the 1099-R will not be issued until tax filing time next year.

Incorrect. The regulations require the income to be reported as "other income" in the year the person died, regardless of when the check is issued. In 2023, the recipient will be issued a form 1099-SA (not a 1099-R), with code 6 in box 3, indicating a distribution after death where the beneficiary was not a spouse.

Hopefully, Turbotax will recognize code 6 on the 1099-SA because a distribution in the year after death is the only time that code is used. Turbotax should ask if you reported the income previously, and should not add the income to the 2023 return.

https://www.irs.gov/instructions/i1099sa