The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: coppertop on January 18, 2016, 07:30:33 AM
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I used HSA money to pay for glasses, contacts, and a medical co-pay for my husband last year. I opened a 1099 the other day, showing the total I used as 'gross distribution.' I thought this money was tax-free as long as I used it for medical expenses - does anyone have experience with this?
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The IRS requires you to prepare Form 8889 and attach it to your tax return when you take a distribution from an HSA. However, if your 1099-SA indicates you did not use the distribution for qualified medical expenses, you will pay income tax on the portion you used for unqualified expenses. So what does the 1099 say?
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I don't have it with me - so I will have to look tonight. Thanks. I did not know about that form to file, but I use tax preparation software and am presuming that use of HSA funds will be one of the interview questions that would result in preparation of that form. Something to watch out for.
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CPA speaking - In your tax prep software, somewhere there should be an option to say "Yes, all of my HSA distribution went to medical expenses not covered by insurance" or possibly a place where you type your total medical expenses not covered by insurance (and the program compares it to the distribution amount). One of those functions will make sure that you don't pay tax as long as you had adequate expenses to cover the distribution.
Your HSA was correct to send you the 1099-SA. You're good! :)
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Thanks! I knew I would get good information here at MMM.