What Is Form 1099-SA?
IRS Form 1099-SA is used to report distributions from a Health Savings Account (HSA), Medical Savings Account (MSA), or Archer MSA. If you withdrew money from an HSA in a given tax year, your HSA provider (bank or financial institution) will issue Form 1099-SA to you and the IRS.
Key Components of Form 1099-SA
This form contains several important pieces of information, including:
- Box 1: Gross distribution – The total amount withdrawn from the HSA during the tax year.
- Box 2: Earnings on excess contributions – If you contributed more than the allowed limit, this box reports any earnings on those excess contributions.
- Box 3: Distribution code – A single-letter code indicating the reason for the withdrawal, such as:
- 1 – Normal distribution
- 2 – Excess contributions removed before the tax deadline
- 3 – Disability
- 4 – Death
- 5 – Prohibited transaction
- Box 4: Federal income tax withheld – If any taxes were withheld from the distribution.
- Box 5: Type of account – This box identifies whether the account is an HSA, Archer MSA, or Medicare Advantage MSA.
How Are HSA Distributions Taxed?
- Qualified Medical Expenses: If the funds were used for eligible medical expenses, the distribution is tax-free and not subject to penalties.
- Non-Qualified Expenses: If you used the funds for non-medical expenses, the amount is subject to income tax and an additional 20% penalty (unless you are disabled, age 65 or older, or deceased).
How to Report HSA Distributions on Your Tax Return
You must report HSA distributions on IRS Form 8889 when filing your taxes. Here’s how:
- Enter the total distribution from Form 1099-SA (Box 1) on Form 8889, Part II.
- Indicate whether the funds were used for qualified medical expenses.
- If non-qualified distributions exist, they must be included in taxable income and may be subject to penalties.
What to Do If You Receive Form 1099-SA?
- Check for accuracy – Ensure that the distribution amount and codes are correct.
- Keep receipts – Maintain records of medical expenses in case of an audit.
- File Form 8889 – If you received HSA distributions, Form 8889 is required when filing your tax return.