Form 1099-SA (Rev. November 2019): 2021 Tax Year Checklist
Form 1099-SA reports distributions from Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs), and Medicare Advantage MSAs. For 2021, recipients must reconcile distributions against qualified medical expenses, account rollovers, and other eligible uses. Trustees must identify nonspouse beneficiary death distributions separately and report earnings on excess contributions withdrawn by the income tax return due date.
FILING STEPS FOR 2021
1. Verify account type checkbox (Box 5)
Confirm whether the distribution source is HSA, Archer MSA, or MA MSA. The 2021 instructions clarify that MA MSA rules do not permit rollovers or trustee-to-trustee transfers. MA MSAs can only be used for qualified medical expenses of the account holder and eligible family members as specified in the Medicare Advantage plan documents.
2. Complete Box 1 (Gross distribution)
Enter the total amount distributed in 2021, whether paid directly to a medical provider or to the recipient. This amount includes both qualified and non-qualified portions. As the trustee, you are not required to compute the taxable portion—that determination is the recipient’s responsibility when filing Form 8889 or Form 8853.
Do not report negative amounts in Box 1. Do not report the withdrawal of excess employer contributions (and the earnings on them) returned to an employer as a distribution from an employee’s HSA. Do not report excess MA MSA contributions returned to the Secretary of Health and Human Services or his or her representative.
3. Report Box 2 (Earnings on excess contributions)
If the recipient or employer withdrew excess contributions plus earnings by the 2021 income tax return due date (typically April 15, 2022), enter the earnings amount separately in Box 2. These earnings are taxable income in the year withdrawn, even if later used for qualified medical expenses. The earnings amount should also be included in the total for Box 1.
Unreturned excess amounts trigger a 6% excise tax under Form 5329 rules, assessed annually until the excess is corrected. For HSAs and Archer MSAs, use the method under Regulations section 1.408-11 for calculating the net income attributable to excess contributions.
4. Enter the Box 3 distribution code for 2021 circumstances
Select the appropriate code that shows the type of distribution:
Code 1 (Normal distribution): Use for regular distributions to the account holder and any direct payments to a medical service provider. Use this code if no other code applies.
Code 2 (Excess contributions): Use for distributions of excess HSA or Archer MSA contributions to the account holder. If the amount in Box 2 includes earnings on excess contributions, enter distribution code 2 in Box 3.
Code 3 (Disability): Use if distributions were made after the account holder became disabled, as defined in section 72(m)(7).
Code 4 (Death distribution other than code 6): Use for payments to a decedent’s estate in the year of death. Additionally, use this code for payments to an estate after the year of the decedent's death. Do not use with code 6.
Code 5 (Prohibited transaction): See sections 220(e)(2) and 223(e)(2).
Code 6 (Death distribution after year of death to a nonspouse beneficiary): Use for payments to a decedent’s nonspouse beneficiary, other than an estate, after the year of death. The 2021 guidance emphasizes code 6 application when a nonspouse beneficiary receives funds in 2021, but the account owner died in 2020 or earlier. Do not use with code 4.
5. Populate Box 4 (Fair market value on date of death)
If the account holder died, enter the fair market value (FMV) as of the date of death. This is required for all beneficiary distributions. For non-spouse beneficiaries, this FMV amount must be reported as income on their tax return for the year in which the account holder passed away, regardless of when the distribution was actually received.
If there is more than one recipient, the FMV should be allocated among them as appropriate. If the beneficiary is the estate, enter the estate’s name and TIN in place of the recipient’s on the form.
6. Determine taxability for HSA spouse beneficiary
If the recipient inherited an HSA from a deceased spouse in 2021 and treats the account as their own HSA, no income inclusion occurs. The surviving spouse becomes the account holder of the HSA and continues to operate it under standard HSA rules.
If the surviving spouse chooses to maintain the inherited HSA as a separate account rather than treating it as their own, different rules may apply, as outlined in Form 8889 instructions. The election choice affects whether distributions are taxable in 2021.
7. Identify nonspouse beneficiary reporting requirement
If the recipient is an estate or non-spouse beneficiary and Box 4 is completed, the recipient must report the FMV amount as income on their tax return for the year the account owner died. The account ceases to be an HSA on the date of the account holder’s death when the beneficiary is not the surviving spouse.
Any earnings after death (Box 1 minus Box 4) are separately taxable as “Other income” on Form 1040 or 1040-SR. These post-death earnings are reported in addition to the FMV inclusion.
8. Calculate the mistaken distribution repayment window
If a recipient received a distribution in error due to a mistake of fact and there is reasonable cause, the trustee may permit repayment. The deadline for repayment is April 15 following the first year the recipient knew or should have known of the mistake.
For example, if the account beneficiary reasonably but mistakenly believed that an expense was a qualified medical expense and was reimbursed for that expense from the HSA, the account beneficiary may repay the mistaken distribution to the HSA. Under these circumstances, the wrong distribution is not included in gross income, is not subject to the additional 20% tax, and the repayment is not subject to the excise tax on excess contributions.
If a repayment made in 2021 or early 2022 qualifies because the mistake was discovered in 2021, the trustee should not report the mistaken distribution on Form 1099-SA, nor should they correct any filed form with the IRS and the account beneficiary.
9. Coordinate with Form 8853 or Form 8889
Recipients must file Form 8853 (Archer MSA or MA MSA) or Form 8889 (HSA) with their 2021 Form 1040 or 1040-SR to report the distribution and compute the taxable portion. Even nontaxable distributions require filing these forms—failure to file results in underreported income and potential IRS mismatch notices.
The 2021 instructions emphasize that filing Form 1099-SA without the corresponding Form 8889 or Form 8853 results in IRS mismatch notices and potential accuracy-related penalties.
10. Verify qualified medical expense documentation
While Form 1099-SA does not require proof of qualified expense use at the time of filing, recipients must maintain records to support nontaxable treatment claimed on Form 8853 or Form 8889. Qualified medical expenses are those defined under Internal Revenue Code section 213(d) and detailed in IRS Publication 502.
For 2021, qualified medical expenses include COVID-19 home testing costs, Personal Protective Equipment (PPE), and over-the-counter medicines (whether or not prescribed), as well as menstrual care products, for amounts paid after 2019. Telehealth and other remote care coverage with plan years beginning before 2022 is also permitted.
Qualified medical expenses do NOT include dependent care expenses such as daycare, babysitting, or eldercare services. These expenses may be eligible for Dependent Care FSA benefits or the Child and Dependent Care Tax Credit, but they are not HSA-qualified medical expenses.
11. Report nonqualified distribution penalties
If an MA MSA distribution is used for non-qualified expenses, a 20% penalty applies in addition to income inclusion. HSA and Archer MSA nonqualified distributions before age 65 also incur a 20% penalty unless an exception applies (such as disability or death).
These penalties are computed on Form 8889 or Form 8853, not on Form 1099-SA. The additional tax does not apply to distributions made after the account holder reaches age 65, becomes disabled, or dies, even if used for non-qualified expenses.
12. File Form 1096 cover sheet with trustee copy
Trustees and payers must file Copy A of Form 1099-SA with Form 1096 as an aggregate summary. For the 2021 tax year:
- Recipient copy (Copy B) due date: January 31, 2022
- IRS filing due date (paper): February 28, 2022
- IRS filing due date (electronic): March 31, 2022
2021 Year-Specific Updates
COVID-19 Related Expenses
The 2021 tax year continues to recognize COVID-19 home testing costs and personal protective equipment (PPE) as eligible qualified medical expenses for HSAs, Archer MSAs, and MA MSAs. The cost of diagnosing and preventing COVID-19 qualifies as a medical expense for tax purposes.
Over-the-Counter Medicines and Menstrual Care Products
The CARES Act (March 27, 2020) made permanent changes allowing over-the-counter medicines (whether or not prescribed) and menstrual care products to be treated as qualified medical care for amounts paid after December 31, 2019. These items remain eligible in 2021.
Telehealth Coverage Accommodation
For HDHPs with plan years beginning before 2022, telehealth and other remote care services are disregarded for determining who is an eligible individual. HDHPs may have a $0 deductible for telehealth and remote care services without affecting HSA eligibility during this period.
Nonspouse Beneficiary Death Distribution Code 6 Clarification
The IRS clarified that code 6 applies exclusively to nonspouse beneficiary distributions received after the calendar year of the account holder’s death. Recipients of code 6 distributions in 2021 must report the full FMV (from Box 4) plus any post-death earnings as income, with special reporting on Form 8889 line 23 or Form 8853 line 19.
Form 8889/8853 Coordination Requirement
The 2021 instructions emphasize mandatory filing of Form 8889 or Form 8853 whenever a Form 1099-SA is received. Recipients receiving any distribution—whether taxable or nontaxable, qualified or nonqualified—must file the applicable form to avoid IRS correspondence and accuracy-related penalties.
Excess Contribution 6% Excise Tax 2021 Assessment
Form 5329 penalties for unreturned excess contributions are assessed annually on a calendar-year basis. Excess contributions, plus earnings withdrawn by the 2021 income tax return due date, reduce the 2021 taxable excess amount. However, the earnings withdrawn remain taxable income, as per the Box 2 instructions. The 6% excise tax continues to apply each year until the excess is corrected.
RECIPIENT NOTE: Form 1099-SA does not compute your taxable amount. Use Form 8853 (for Archer MSA or MA MSA distributions) or Form 8889 (for HSA distributions) to calculate what portion, if any, of your distribution is taxable. Maintain detailed records of all qualified medical expenses to substantiate tax-free treatment of distributions.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
