Form 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA (2012)

What Form 1099-SA Is For

Form 1099-SA is an official tax document you'll receive from your bank, insurance company, or other financial institution (called the ""trustee"") that manages your health savings account. It reports how much money you withdrew from one of three special tax-advantaged medical savings accounts during 2012:

• Health Savings Account (HSA) – The most common type, paired with high-deductible health insurance plans
• Archer Medical Savings Account (Archer MSA) – An older program primarily for self-employed individuals and small business employees
• Medicare Advantage MSA – Exclusively for Medicare enrollees in special Medicare Advantage plans

Think of Form 1099-SA as your financial institution's official report card to you and the IRS about your account activity. The form shows the total amount you took out of your account in 2012, whether you spent it on medical bills, had it sent directly to a doctor or hospital, or withdrew it for any other reason.

Why this form matters: The IRS needs to know about these withdrawals because they may affect your taxes. If you used the money for qualified medical expenses (doctor visits, prescriptions, hospital stays, etc.), the withdrawal is tax-free. But if you used it for non-medical purposes—say, groceries or vacation—you'll owe income tax on that amount plus a potentially hefty 20% penalty.

You should receive Form 1099-SA by January 31, 2013 if you took any money out of your account during 2012. Even if your distribution was completely for medical expenses and won't be taxed, you still must report it on your tax return using Form 8889 (for HSAs) or Form 8853 (for Archer MSAs and Medicare Advantage MSAs).

When You’d Use Form 1099-SA (Late/Amended)

Normal filing

You'll use Form 1099-SA when preparing your 2012 tax return, which is typically due April 15, 2013. The information from this form goes onto either Form 8889 or Form 8853, which you'll attach to your Form 1040.

Late or corrected situations

If you receive a CORRECTED Form 1099-SA: Sometimes the trustee makes a mistake—reporting the wrong dollar amount, incorrect distribution code, or other errors. If you receive a corrected form (marked ""CORRECTED"" in a box at the top), you may need to file an amended return using Form 1040X if you already filed your taxes. The IRS gives you three years from your original filing deadline to file an amended return.

If you never received the form: Contact your account trustee immediately. You're still legally required to report distributions even if you never received the form. Check your online account portal—many institutions now provide electronic access to tax forms. If you can't locate it, the trustee must provide a duplicate upon request.

If you missed reporting it entirely: If you discover you failed to report a 1099-SA from a prior year, you should file an amended return for that year. The IRS receives a copy of every Form 1099-SA and will eventually notice the discrepancy, which could trigger penalties and interest charges.

Death of account holder: Special rules apply when the account holder dies. The form will show the fair market value of the account on the date of death in Box 4, and beneficiaries must follow specific reporting procedures depending on whether they're the spouse, another family member, or the estate.

Key Rules or Details for 2012

Understanding these fundamental rules will help you avoid expensive mistakes:

The Golden Rule – Qualified Medical Expenses: Distributions are tax-free only if used for qualified medical expenses as defined in IRS Publication 502. For 2012, these include:

• Doctor visits, hospital stays, surgeries, and diagnostic tests
• Prescription medications prescribed by a doctor
• Over-the-counter medicines only with a prescription (insulin is the exception)
• Dental and vision care
• Medical equipment and supplies
• Certain insurance premiums (long-term care, COBRA, Medicare if you're 65+)

What's NOT qualified: Over-the-counter medicines without a prescription (even aspirin or cold medicine), cosmetic procedures, gym memberships, vitamins, and most insurance premiums.

The 20% Penalty Hammer: If you withdraw money for non-qualified expenses and you're under age 65 and not disabled, you'll pay:

• Regular income tax on the withdrawal, PLUS
• An additional 20% tax penalty

For example, a $1,000 non-qualified withdrawal could cost you $200 in penalty tax plus another $250 or more in income tax (depending on your tax bracket)—that's $450 total, leaving you with just $550.

Contribution and distribution limits (2012):

• HSA contribution limits: $3,100 for self-only coverage; $6,250 for family coverage
• Age 55+ catch-up: Additional $1,000 contribution allowed
• No distribution limits: Unlike contributions, there's no limit on how much you can withdraw—but you'll pay taxes and penalties on non-qualified amounts

Spouse and dependent coverage: You can use HSA funds tax-free to pay for qualified medical expenses of your spouse and any tax dependents, even if they're not covered by your high-deductible health plan.

Timing matters: For HSA purposes, expenses incurred before you established your HSA don't count as qualified medical expenses—even if you had the receipt from earlier in the year.

Step-by-Step (High Level)

Here's how Form 1099-SA flows from your account activity to your tax return:

Step 1: You Take a Distribution

During 2012, you withdrew money from your HSA, Archer MSA, or Medicare Advantage MSA. This could have happened by:

• Writing yourself a check
• Using a debit card linked to the account
• Having the trustee send payment directly to your doctor or hospital
• Electronic transfer to your bank account

Step 2: Trustee Reports the Distribution

Your account trustee tracks all withdrawals and, by January 31, 2013, sends you (and the IRS) Form 1099-SA showing:

• Box 1: Total gross distribution amount
• Box 2: Earnings on excess contributions (if applicable—usually zero)
• Box 3: Distribution code (usually ""1"" for normal distribution)
• Box 4: Fair market value on date of death (only if account holder died)
• Box 5: Checkbox indicating account type (HSA, Archer MSA, or MA MSA)

Step 3: Gather Your Medical Expense Records

Pull together all receipts, bills, and explanation of benefits (EOB) statements from your insurance company for 2012. Calculate your total qualified medical expenses that you paid out-of-pocket.

Step 4: Compare Distributions to Qualified Expenses

Match your total distributions (Box 1 of Form 1099-SA) against your documented qualified medical expenses:

• If expenses ≥ distributions: Congratulations! Your entire distribution is tax-free (but you still must report it).
• If expenses < distributions: The difference is taxable income plus 20% penalty (unless you're 65+ or disabled).

Step 5: Complete Form 8889 or Form 8853

• For HSAs: Use Form 8889, reporting distributions on Line 14a and qualified medical expenses on Line 15
• For Archer/Medicare Advantage MSAs: Use Form 8853 with similar reporting

Step 6: File with Your Tax Return

Attach the completed Form 8889 or 8853 to your Form 1040 when you file. The taxable amount (if any) flows to your Form 1040 as income. Keep your Form 1099-SA and all medical receipts with your tax records—don't send them to the IRS.

Common Mistakes and How to Avoid Them

Mistake #1: Not reporting the distribution at all

The problem: Some people think if they used all the money for medical expenses, they don't need to report it.
The reality: You must report all distributions, even if 100% tax-free. The IRS receives a copy of your 1099-SA and will send you a notice if it doesn't appear on your return.
How to avoid: Always file Form 8889 or Form 8853 when you receive a 1099-SA, regardless of whether you owe taxes.

Mistake #2: Throwing away receipts

The problem: You withdrew $5,000 from your HSA and spent it on medical bills, but you didn't keep the receipts. If the IRS audits you, you can't prove the expenses were qualified.
The reality: The IRS can disallow your tax-free treatment and assess taxes, penalties, and interest going back several years.
How to avoid: Create a filing system for medical receipts. Consider scanning them digitally. Keep records for at least seven years.

Mistake #3: Buying over-the-counter medications without a prescription

The problem: In 2012, you can't use HSA money tax-free for over-the-counter medicines unless you have a prescription (insulin excepted).
The reality: That $200 you spent on cold medicine and pain relievers without prescriptions becomes taxable income plus 20% penalty.
How to avoid: Ask your doctor for prescriptions for over-the-counter medicines, or pay for them with regular funds and save your HSA for other qualified expenses.

Mistake #4: Double-dipping on tax benefits

The problem: You take a tax-free HSA distribution for medical expenses, then also claim those same expenses as itemized deductions on Schedule A.
The reality: IRS rules prohibit this. You can't get two tax benefits for the same expense.
How to avoid: If you take HSA distributions, don't include those same expenses when itemizing medical deductions. Only expenses you paid with ""regular"" money (not HSA funds) can be itemized.

Mistake #5: Confusing distribution codes

The problem: Box 3 shows a code other than ""1"" (like code ""2"" for excess contributions or code ""4"" for death distributions), but you treat it like a normal distribution.
The reality: Different codes have different tax treatments and reporting requirements.
How to avoid: Carefully read the instructions for Form 8889 or Form 8853 to understand how to report distributions with codes other than ""1.""

Mistake #6: Not coordinating with your spouse

The problem: You're married with family HSA coverage, and both spouses take distributions without tracking who's using how much.
The reality: If you both have HSAs, you need to carefully allocate medical expenses between accounts to maximize tax benefits and avoid complications.
How to avoid: Keep a shared spreadsheet or system for tracking which medical expenses are reimbursed from which account.

What Happens After You File

Immediate aftermath (April–June 2013)

After you file your 2012 tax return with Form 8889 or Form 8853 attached:

• Your tax return goes through initial IRS processing, where computers match your reported 1099-SA distributions against what trustees reported
• If everything matches and looks correct, you'll receive your refund (if owed) within 21 days for e-filed returns, or 6-8 weeks for paper returns
• Your HSA remains active and continues to grow tax-free; you can make contributions for 2013

Potential IRS notices

In rare cases where something doesn't match, you might receive:

• CP2000 notice: Indicates the IRS records don't match your return (usually within 1-2 years after filing). Respond promptly with copies of your Form 1099-SA and proof of qualified medical expenses.
• Audit notice: Requests documentation proving your distributions were used for qualified medical expenses. Provide organized receipts, EOBs, and a clear explanation.

Long-term implications

If distributions were tax-free: No further action needed. Your HSA balance can continue growing, and you can keep taking distributions for qualified medical expenses in future years.

If you paid taxes/penalties on non-qualified distributions: These amounts become part of your income history but don't affect your ability to continue using your HSA properly going forward. Learn from the experience and use future distributions only for qualified expenses.

Record retention

Keep your 2012 Form 1099-SA, Form 8889/8853, and all supporting medical receipts for at least three years from the filing date, or longer if you claimed large deductions. The IRS can generally audit returns for three years, but seven years is safer for complete records.

State taxes

Most states follow federal HSA rules, but a few (California, New Jersey, Alabama) don't fully conform. If you live in one of these states, you may have additional state reporting requirements even after completing your federal return.

FAQs

Q1: I received a Form 1099-SA but I never took any distributions. What should I do?

Contact your account trustee immediately—this is likely an error. Common causes include: the trustee processing a mistaken distribution, confusion with another account holder with a similar name, or a rollover that shouldn't have been reported. Request a corrected Form 1099-SA showing zero distributions. If you already filed your taxes, you may need to file an amended return once you receive the corrected form.

Q2: Can I take a distribution in 2012 for medical expenses I had in 2011?

Yes! As long as the medical expenses were incurred after you established your HSA (or Archer MSA), you can reimburse yourself at any time in the future. Many people strategically pay medical expenses with regular funds, keep the receipts, and then reimburse themselves from their HSA years later when they need the money. There's no time limit on this reimbursement strategy.

Q3: I turned 65 in 2012. Does the 20% penalty still apply to my non-qualified distributions?

No! Once you turn 65 (or become disabled), the 20% additional tax penalty no longer applies to non-qualified distributions. However, you'll still owe regular income tax on any non-qualified distributions. This makes HSAs even more valuable as you approach retirement—they effectively become additional retirement accounts after age 65.

Q4: What if I don't have enough receipts to prove all my distributions were for qualified medical expenses?

You'll need to report the portion you can't document as taxable income and pay the 20% penalty (if under 65 and not disabled). For future years, establish better record-keeping habits immediately. Consider paying for medical expenses with a credit card first, keeping the receipt, and then reimbursing yourself from the HSA—this creates a clear paper trail.

Q5: Can I use my HSA to pay for my adult child's medical expenses tax-free?

Only if you can claim your adult child as a dependent on your tax return. If your child is over 19 (or 24 if a full-time student) and doesn't meet the IRS dependency tests, their medical expenses aren't qualified expenses for your HSA, even if you actually pay the bills.

Q6: I made excess contributions to my HSA in 2012. How does this affect my Form 1099-SA?

If you withdrew the excess contributions before your tax filing deadline, Box 2 of Form 1099-SA shows the earnings on those excess contributions. These earnings are taxable income (reported as ""Other income"" on your tax return) even though the principal excess contribution withdrawal itself isn't taxed. If you didn't withdraw the excess, you'll owe a 6% excise tax on the excess amount using Form 5329—this is separate from Form 1099-SA reporting.

Q7: My employer contributed to my HSA. Does that affect my Form 1099-SA reporting?

Not directly. Form 1099-SA only reports distributions (money coming out). Contributions (money going in) are reported on Form 5498-SA, which you'll receive by May 31, 2013, and on your W-2 (Box 12, Code W). However, employer contributions do reduce the amount you can personally contribute without exceeding the annual limits, which matters for avoiding the excess contribution problems mentioned in Q6.

Sources

This guide is based on official IRS guidance for tax year 2012:

• IRS Form 1099-SA (2012)
• IRS Instructions for Forms 1099-SA and 5498-SA (2012)
• IRS Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans (2012)

Final Note: This guide provides general information for tax year 2012. Tax laws are complex and individual situations vary. For specific tax advice tailored to your circumstances, consult a qualified tax professional or contact the IRS directly at 1-800-829-1040.

‍