Do I Have to File Form 1099-SA With My Taxes?

Form 1099-SA is a document for individuals who have received distributions from tax-advantaged health accounts, including Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), or Medicare Advantage MSAs. This form reports withdrawals from these accounts, which help individuals save for qualified medical expenses. Understanding Form 1099-SA is important for accurately preparing your tax return.

Understanding Form 1099-SA

Form 1099-SA is an informational return. The financial institution or trustee managing your account, such as a bank or insurance company, issues this form to you and sends a copy to the Internal Revenue Service (IRS) by January 31st each year. You do not file Form 1099-SA yourself; you receive it and use its information for tax preparation.

This form provides details about distributions from your health savings account during the tax year. Box 1 reports the gross distribution amount. Box 3 contains a distribution code, indicating the type of distribution. Box 4 specifies the account type: HSA, Archer MSA, or Medicare Advantage MSA.

Reporting Health Savings Account Distributions

The information provided on Form 1099-SA is critical for completing IRS Form 8889, “Health Savings Accounts (HSAs),” which must be filed with your federal income tax return, typically Form 1040. You must report the gross distribution amount from Box 1 of your Form 1099-SA onto Form 8889. This step is necessary even if you believe all your distributions were used for qualified medical expenses and are therefore tax-free.

On Form 8889, you will also indicate the amount of distributions that were used for qualified medical expenses. Qualified medical expenses are generally those that would be deductible as medical expenses on Schedule A if you itemized deductions, such as payments for medical care, prescription drugs, dental services, vision care, and certain long-term care insurance premiums. Distributions used for these qualified expenses are generally tax-free and are not subject to income tax. Form 8889 then calculates any taxable portion of your distributions by subtracting your qualified medical expenses from the total distributions, and this taxable amount flows to your Form 1040.

Tax Implications of Non-Qualified Distributions

When distributions from an HSA are not used for qualified medical expenses, they are generally subject to taxation. Any portion of an HSA distribution that is not used for eligible medical expenses is typically included in your gross income and taxed as ordinary income. This means the funds become taxable at your regular income tax rate, similar to wages or other earned income.

In addition to being taxable, non-qualified distributions may also incur an additional 20% penalty tax. This penalty applies unless specific exceptions are met, such as if the distribution occurs after you reach age 65, become disabled, or in the event of death. For instance, if you are under age 65 and use HSA funds for non-medical purposes like personal expenses, both the income tax and the 20% penalty would apply to that amount. These non-qualified distributions and any applicable penalty are calculated and reported on Form 8889, ultimately impacting your overall tax liability on Form 1040.