Question

Adding my HSA distributions for tax year 2023 increased "Federal Tax Due" about $250 (box checked indicating HSA funds used for qualified expenses). This make sense?

Forum|Forum|2 years ago
March 14, 2024
1 reply
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TurboTax Online

Don't watch the Refund Meter too closely.

When you added the 1099-SA, that amount, according to the IRS, is taxable until you indicate that it was for qualified medical expenses. Go all the way to the end of the HSA interview and see if that amount is still in Federal Tax Due.

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B

bob-reichert-livAuthor

Hi Bill,

Thanks for the reply.

I checked the box indicating the funds were used for authorized medical expenses. I also checked the form (used the turbotax "View pull down tab") to see the the box on 1099-SA in turbotax has the box checked indicating the funds were used for qualified medical expenses (it is checked).

I am basically done with my taxes (all data entered and can submit).

I decided to do one last review. I changed the HSA distribution amount to see if it influenced my MAGI. I reduced the HSA distribution I received drastically. I figured the amount of tax owed should not change. It did (taxes owed go up when I increase the HSA distribution, and go down when I decrease the distribution). MAGI does not change.

In the "Summary form", it looks like I might owe a tax penalty. Increasing the HSA distribution also increases the tax penalty. Seems like my HSA distribution from 1099-SA is being treated as taxable income. Maybe I'm pressing (or not pressing) the correct button?

Any thoughts??

Thanks!

C

clschaaf

"I believe that's proper since California doesn't tax the HSA distribution." - True

"I seem to remember that CA also doesn't give a reduction in income for HSA contributions." - Also true

"making sure that I documented enough previous year medical expenses to exceed the account balance." - you mean expenses for 2023?

"Do I still need to perform the CA adjustment to income and add the HSA amount as an addition? " When you look closely, you will see a number of items concerning HSAs that TurboTax automatically adjusts on the CA return. By and large, you should leave these alone.

But you are referring specifically to the 1099-SA that was the distribution to close the HSA? Did you tell TurboTax that the distribution was for medical expenses or not?

Well. the amount that was for medical expenses ends up nowhere on the federal return on but is on Line 4 on Part II on Schedule CA. The amount that was not for medical expenses ends up on line 8f Schedule 1 (1040). but on Schedule CA in Part I schedule B, line 8f.

I think that whatever you did with the distribution, you should leave those alone.

"I also attempted to override line 13b to zero on the Schedule A worksheet, but TurboTax called it an error). This does appear to be a gap in functionality." - Why?

"previous year medical expenses" was a typo. It should have been "previous years".

Since I never took any distribution when I was contributing, I had multiple years worth of medical expenses that I documented that more than offset my final distribution. None of those expenses were from 2024.

Yes, I told TurboTax that the entire distribution was for medical expenses.

The fact that TurboTax automatically populates line 13b is the gap. It should not automatically assume the distribution applies to current year medical expenses. There should be an additional question regarding whether it's for current and/or previous years.

The workaround that you suggested worked, but without reading your answers, I wouldn't have figured it out. I would have overpaid Federal and received a smallerr CA refund.

Thanks for your time and expertise.