Form 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA (2014) – A Complete Guide
If you took money out of your Health Savings Account (HSA), Archer Medical Savings Account (MSA), or Medicare Advantage MSA in 2014, you should have received a Form 1099-SA. This guide breaks down everything you need to know about this form in plain language, from understanding what it reports to filing it correctly with your tax return.
What Form 1099-SA Is For
Form 1099-SA is an information return that reports distributions (withdrawals) made from three types of tax-advantaged medical savings accounts during the 2014 calendar year:
- Health Savings Accounts (HSAs) – Accounts paired with high-deductible health plans that let you save pre-tax dollars for medical expenses
- Archer MSAs – An older type of medical savings account for self-employed individuals and employees of small businesses
- Medicare Advantage MSAs – Special accounts funded by Medicare for beneficiaries enrolled in Medicare Advantage MSA plans
The trustee or custodian of your account (typically a bank, insurance company, or financial institution) sends you this form to report the total amount you withdrew during 2014, regardless of what you used the money for. The form shows the gross distribution amount, identifies the type of account, and includes important codes that indicate the reason for the distribution.
Important: Receiving a Form 1099-SA doesn't automatically mean you owe taxes. If you used the money for qualified medical expenses (doctor visits, prescriptions, hospital bills, etc.), the distribution is generally tax-free. However, you must still 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 (Including Late and Amended Returns)
Regular Filing Timeline
You should have received your Form 1099-SA by February 2, 2015. You use this form when preparing your 2014 tax return, which was originally due April 15, 2015 (or October 15, 2015, if you filed for an extension). The information from Form 1099-SA must be reported on your tax return even if the distribution was completely tax-free.
Late Filing Situations
If you're filing your 2014 tax return late (after the original deadline passed), you still need to include Form 1099-SA information. Late filers face potential penalties, but accurately reporting HSA/MSA distributions is crucial to avoid additional complications. If you never received your Form 1099-SA, contact your account trustee immediately to request a copy.
Amended Returns
You may need to file an amended 2014 return (using Form 1040X) if:
- You didn't report your Form 1099-SA distributions on your original return
- You incorrectly reported distributions as taxable when they should have been tax-free (or vice versa)
- You received a corrected Form 1099-SA after filing your original return
- You discovered you used HSA funds for non-qualified expenses and didn't report them properly
For amended returns, attach a corrected Form 8889 or Form 8853 showing the accurate information, and explain the changes on Form 1040X. Amended returns for 2014 generally must be filed within three years of the original filing deadline or within two years of paying the tax, whichever is later.
Key Rules or Details for 2014
Qualified Medical Expenses
Distributions used for qualified medical expenses are tax-free. For 2014, qualified expenses included costs for diagnosis, cure, treatment, or prevention of disease for you, your spouse, and your dependents. Examples include doctor visits, hospital care, prescription medications (insulin and medications requiring a prescription), dental care, vision care, and certain medical equipment.
Critical limitation: Over-the-counter medicines without a prescription were NOT qualified expenses in 2014 (except insulin).
Tax Consequences for Non-Qualified Distributions
If you withdrew money from your HSA or Archer MSA for non-medical purposes in 2014, two things happen:
- The distribution becomes taxable income (added to your gross income)
- You face an additional 20% penalty tax on the taxable amount
Exceptions to the 20% penalty (but the distribution is still taxable):
- You're age 65 or older
- You're disabled
- The distribution was made to a beneficiary after the account holder's death
Contribution Limits for 2014
While Form 1099-SA reports distributions (not contributions), understanding the 2014 contribution limits provides context:
- HSA self-only coverage: $3,300 (plus $1,000 catch-up if age 55+)
- HSA family coverage: $6,550 (plus $1,000 catch-up if age 55+)
Special Rules
- Mistaken distributions: If amounts were distributed by mistake and repaid by April 15, 2015, they don't need to be reported as distributions
- Death distributions: Special reporting rules apply when the account holder died in 2014 or earlier
- Rollovers: Direct trustee-to-trustee transfers between similar accounts aren't reported as taxable distributions
Step-by-Step (High Level)
Here's the basic process for reporting Form 1099-SA on your 2014 tax return:
Step 1: Gather Your Documents
Collect your Form 1099-SA (showing the distribution amount), receipts for medical expenses paid in 2014, and documentation proving expenses were qualified.
Step 2: Identify Which Additional Form You Need
- For HSA distributions: Use Form 8889 (Health Savings Accounts)
- For Archer MSA or Medicare Advantage MSA distributions: Use Form 8853 (Archer MSAs and Long-Term Care Insurance Contracts)
Step 3: Complete the Appropriate Form
Transfer information from Form 1099-SA to the correct lines on Form 8889 or 8853. The form will walk you through calculating:
- Total distributions received (Box 1 from Form 1099-SA)
- Qualified medical expenses paid during 2014
- Any taxable portion of the distribution
- The 20% additional tax, if applicable
Step 4: Attach to Your Tax Return
File Form 8889 or Form 8853 with your Form 1040, Form 1040A, or Form 1040NR for 2014. Even if your entire distribution was tax-free, you must still file these forms.
Step 5: Report Any Taxable Amount
If any portion of your distribution was taxable:
- The taxable amount flows to your Form 1040 as "Other income"
- The 20% additional tax (if applicable) is calculated and reported on Form 8889 or Form 8853 and transferred to your Form 1040
Step 6: Keep Records
Retain copies of Form 1099-SA, supporting documentation for medical expenses, receipts, and completed tax forms for at least three years after filing (the IRS can audit HSA records and request proof that expenses were qualified).
Common Mistakes and How to Avoid Them
Mistake #1: Not Filing Form 8889 or Form 8853
Many taxpayers wrongly assume that if they only used HSA money for medical expenses, they don't need to report anything. Solution: Always file Form 8889 (for HSAs) or Form 8853 (for Archer/Medicare Advantage MSAs) when you receive a Form 1099-SA, regardless of whether the distribution is taxable.
Mistake #2: Confusing Contributions and Distributions
Some people mistakenly report distribution amounts as contributions or vice versa. Solution: Remember that Form 1099-SA reports money coming OUT of your account (distributions). Form 5498-SA reports money going IN (contributions). These are separate forms with different purposes.
Mistake #3: Failing to Report Non-Qualified Expenses
If you used HSA funds for non-medical purposes (like paying rent or buying groceries), some taxpayers simply don't report this. Solution: Be honest and report all non-qualified distributions as taxable income plus the 20% penalty. The IRS can audit HSA records, and penalties for underreporting are significant.
Mistake #4: Not Keeping Adequate Records
Without receipts and documentation, you can't prove your expenses were qualified if audited. Solution: Keep detailed records of all medical expenses paid with HSA/MSA funds, including itemized receipts showing the date, provider, service description, and amount paid.
Mistake #5: Ignoring Distribution Codes
Form 1099-SA Box 3 contains distribution codes (1=Normal, 2=Excess contributions, 3=Disability, 4=Death, 5=Prohibited transaction, 6=Death distribution to non-spouse after year of death). Ignoring these codes can lead to incorrect reporting. Solution: Pay attention to the code and follow the specific instructions for that distribution type in the Form 8889 or 8853 instructions.
Mistake #6: Missing the Earnings on Excess Contributions (Box 2)
Box 2 shows earnings on excess contributions that were withdrawn. This amount is always taxable, even if you used it for qualified medical expenses, and must be reported as "Other income." Solution: Don't overlook Box 2—if there's an amount there, report it separately as taxable income.
Mistake #7: Not Coordinating with Spouse's HSA
Married couples sometimes incorrectly combine or split distributions when both have HSAs. Solution: Each spouse must file their own Form 8889 for their separate HSA, reporting only their own distributions and qualified expenses.
What Happens After You File
IRS Processing
After you file your 2014 return with Form 8889 or Form 8853 attached, the IRS processes the return and matches the information against the Form 1099-SA your account trustee filed. The IRS computer systems look for discrepancies between what was reported to them and what you reported on your return.
If Everything Matches
If your reported distributions match the Form 1099-SA and your calculations are correct, the IRS typically accepts your return without question. You'll receive any refund due within a few weeks (or months if you filed a paper return).
If There Are Discrepancies
The IRS may send you a notice (typically a CP2000 or similar) indicating a mismatch. This is not an audit, but a proposal to adjust your tax. You can respond by:
- Agreeing with the IRS and paying any additional tax
- Disagreeing and providing documentation to support your original filing
Potential Audit
While HSA audits aren't extremely common, the IRS does examine HSA returns, especially when large distributions are reported as tax-free. During an audit, you must provide:
- Receipts proving medical expenses were qualified
- Documentation showing expenses were incurred in 2014 or later (after your HSA was established)
- Proof that you were eligible to have an HSA when distributions were taken
Statute of Limitations
Generally, the IRS has three years from the filing date to audit your 2014 return. However, if you substantially underreported income (by 25% or more), this extends to six years. If you never filed Form 8889 or Form 8853 when required, there's no statute of limitations—the IRS can come back anytime.
Correcting Errors
If you discover an error after filing, you can file an amended return (Form 1040X) to correct it. If the error results in additional tax owed, file the amendment as soon as possible to minimize interest and penalties.
FAQs
Q1: What if I used my HSA distribution for non-medical expenses but I was age 65 when I took it?
If you're 65 or older, distributions for non-medical expenses are still taxable income, but you avoid the 20% penalty. Report the taxable amount on Form 8889, which flows to your Form 1040 as ordinary income.
Q2: I got divorced in 2014. Can I use HSA funds for my ex-spouse's medical expenses?
No. Once divorced, your ex-spouse is no longer an eligible family member. Distributions used for their medical expenses after the divorce are taxable and subject to the 20% penalty (unless you're 65+ or disabled).
Q3: Can I use 2014 HSA distributions to pay medical expenses from 2013 or earlier?
For HSAs, you can only use distributions tax-free for expenses incurred after you established your HSA. If your HSA was established before 2013, then yes, you could use 2014 distributions to reimburse yourself for 2013 expenses. Keep documentation proving when expenses occurred and when your HSA was established.
Q4: What if my employer made contributions to my HSA in 2014, but I also took distributions? Do I report both?
Yes. Contributions (reported on Form 5498-SA and your W-2) and distributions (reported on Form 1099-SA) are reported separately on Form 8889. Contributions don't offset distributions—each is reported in its own section of the form.
Q5: I received my Form 1099-SA late, after I already filed my 2014 return. What should I do?
If the distribution wasn't reported on your original return, file an amended return (Form 1040X) as soon as possible, attaching Form 8889 or Form 8853 showing the distribution. If you already reported it correctly without the form, you don't need to amend.
Q6: The amount in Box 1 seems wrong. What should I do?
First, check your account statements to verify the actual distributions. If the Form 1099-SA is incorrect, contact your trustee immediately and request a corrected form. They'll issue a Form 1099-SA marked "CORRECTED" and file it with the IRS. Use the corrected information when filing your tax return.
Q7: I had both an HSA and an Archer MSA in 2014 and received two Forms 1099-SA. How do I report this?
Report the HSA distribution on Form 8889 and the Archer MSA distribution on Form 8853. You'll file both forms with your tax return. The contribution limit for the year must be reduced by contributions to both accounts, so coordinate the reporting carefully.
Where to Find Official Information
All information in this guide comes from official IRS sources at IRS.gov:
- Form 1099-SA (2014)
- Instructions for Forms 1099-SA and 5498-SA (2014)
- Publication 969 (2014): Health Savings Accounts and Other Tax-Favored Health Plans
- Form 8889: Health Savings Accounts
- About Form 1099-SA
Disclaimer
This guide provides general information for the 2014 tax year. Tax laws are complex and individual circumstances vary. For specific tax advice regarding your situation, consult a qualified tax professional or contact the IRS directly.
