Provided that you proceed through TurboTax in sequence by clicking Continue each time it appears, TurboTax does ask the necessary questions to determine the taxable amount of a distribution reported on a Form 1099-SA.
To make a code-1 or code-3 Form 1099-SA nontaxable, when asked by TurboTax you must indicate that the distribution was used for qualified medical expenses or was rolled over to another HSA or MSA, whichever applies.
If you received a code-2 Form 1099-SA, the amount shown in box 2 is taxable.
If you received a code-4 or code-6 Form 1099-SA, the amount that is taxable is reduced by the amount of the decedent's pre-death expenses that you paid within the one-year period following the date of death, which you must enter when TurboTax asks.
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