Form 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA (2020)

What Form 1099-SA Is For

Form 1099-SA is a tax document that reports money you withdrew (took out) from three types of health savings accounts during 2020: Health Savings Accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), or Medicare Advantage Medical Savings Accounts (MA MSAs). Think of it as a receipt from your account administrator showing how much you spent from your tax-advantaged health account during the year.

You'll receive this form from your HSA trustee or custodian—usually your bank, insurance company, or financial institution that manages your account—if you took any distributions during 2020. The form reports the total amount you withdrew, whether it was paid directly to you, to a medical provider on your behalf, or even if it was transferred to your bank account for reimbursement of medical expenses you already paid out-of-pocket.

The key purpose of Form 1099-SA is to help you and the IRS track whether your withdrawals were used for qualified medical expenses (tax-free) or for other purposes (taxable with potential penalties). The form doesn't make any judgments about whether you used the money correctly—it simply reports that you took money out. You'll need to determine on your tax return whether those distributions were for qualified medical expenses.

According to the IRS 2020 Instructions for Forms 1099-SA and 5498-SA, the distribution may have been paid directly to a medical service provider or to you as the account holder. The trustee is required to report all distributions, regardless of how they were used.

When You’d Use Form 1099-SA (Including Late Filing and Amended Returns)

Typical Filing Timeline

You should receive your Form 1099-SA by January 31, 2021 (for tax year 2020). You'll use this form when preparing your 2020 tax return, which is due April 15, 2021. The information from Form 1099-SA gets reported on IRS Form 8889 (Health Savings Accounts), which you attach to your Form 1040.

Late Filing Situations

If you don't receive your Form 1099-SA by early February, contact your HSA administrator immediately. You're still required to report any HSA distributions on your tax return even if you haven't received the form. Check your online account portal—many administrators make the form available electronically before mailing paper copies.

When to File an Amended Return

You may need to file an amended return (Form 1040-X) if:

• You receive a corrected Form 1099-SA after filing your taxes showing different distribution amounts
• You initially reported distributions as non-qualified but later realize they were for qualified medical expenses (and you have receipts to prove it)
• You forgot to report Form 1099-SA distributions entirely on your original return
• You made a mistake calculating the taxable portion of your distributions

According to IRS guidance, you generally have three years from the original filing deadline to file an amendment. For 2020 returns, that means until April 15, 2024. However, if you discover you owe additional taxes, file the amended return as soon as possible to minimize interest and potential penalties.

Important: Wait until your original return is fully processed before filing an amendment. The IRS may automatically correct simple math errors without requiring you to amend.

Key Rules or Details for 2020

Several important rules applied specifically to 2020 distributions:

Contribution and Distribution Limits

For 2020, the HSA contribution limit was $3,550 for self-only coverage and $7,100 for family coverage (plus an additional $1,000 if you were 55 or older). These limits matter because excess contributions could trigger taxes and penalties.

Qualified Medical Expenses

Distributions are tax-free only when used for qualified medical expenses as defined by IRS Publication 969 (2020). These include costs for diagnosis, treatment, mitigation, or prevention of disease. Common examples include doctor visits, prescription drugs, hospital stays, dental care, vision care, and medical equipment.

2020 CARES Act Changes

The Coronavirus Aid, Relief, and Economic Security Act made important changes for 2020:

• Over-the-counter medicines (without a prescription) became qualified medical expenses for amounts paid after December 31, 2019
• Menstrual care products also became qualified medical expenses
• Telehealth services with zero deductible for plan years beginning before 2022 became allowable

Penalty for Non-Qualified Distributions

If you withdrew money for expenses that don't qualify as medical expenses, you must:

• Include the distribution amount as taxable income on your tax return
• Pay an additional 20% penalty tax on that amount

Exceptions to the 20% Penalty

You won't owe the 20% penalty if you were:

• Age 65 or older when you took the distribution
• Disabled (as defined by IRS Section 72(m)(7))
• Taking the distribution due to death (beneficiary distributions)

Timing Rule

For HSA purposes, expenses incurred before you established your HSA aren't qualified medical expenses. You can only receive tax-free reimbursements for medical expenses incurred after your HSA was opened.

Step-by-Step (High Level)

Step 1: Receive and Review Your Form 1099-SA

Check that Box 1 (Gross Distribution) matches your records of withdrawals. Verify the distribution code in Box 3—Code 1 is the most common for normal distributions. Box 5 should indicate which type of account you have (HSA, Archer MSA, or MA MSA).

Step 2: Gather Your Medical Expense Documentation

Collect receipts, invoices, and Explanation of Benefits (EOB) statements for all medical expenses you paid in 2020. These must show the date of service, provider name, type of service, and amount you paid. Keep these records even if you don't need to attach them to your return—the IRS can request them during an audit.

Step 3: Match Distributions to Qualified Expenses

Compare your total distributions (Box 1 of Form 1099-SA) to your documented qualified medical expenses. If your qualified medical expenses equal or exceed your distributions, the entire distribution is generally tax-free.

Step 4: Complete Form 8889

This form calculates your taxable distribution amount and any penalties. You'll report:

• Part I: Your HSA contributions for the year
• Part II: Your HSA distributions and whether they were for qualified medical expenses
• Part III: Any additional tax owed on non-qualified distributions

Step 5: Transfer Information to Form 1040

The deduction for HSA contributions appears on Schedule 1 (Additional Income and Adjustments to Income), which feeds to Form 1040. Any taxable distributions and penalties from Form 8889 also transfer to your main tax return.

Step 6: Maintain Records

Keep your Form 1099-SA, Form 8889, and all supporting medical receipts for at least three years after filing. The IRS can audit HSA distributions and will require proof that withdrawals were used for qualified medical expenses.

Common Mistakes and How to Avoid Them

Mistake #1: Not Reporting Form 1099-SA at All

Some taxpayers mistakenly believe that if they used HSA funds only for medical expenses, they don't need to report the form. Wrong. You must report all HSA distributions on Form 8889, even if 100% were for qualified medical expenses. The form shows the IRS that your distributions were legitimate. Solution: Always complete Form 8889 when you receive a 1099-SA, regardless of how you used the money.

Mistake #2: Confusing Form 1099-SA with Form 5498-SA

Form 1099-SA reports distributions (money you took out of your HSA), while Form 5498-SA reports contributions (money put into your HSA). Many people receive both forms and get confused about which to use. Solution: Use Form 1099-SA to report withdrawals on Form 8889, Part II. You typically don't attach Form 5498-SA to your return since contributions are reported separately.

Mistake #3: Using HSA Funds for Non-Qualified Expenses Without Understanding the Tax Consequences

Some account holders withdraw HSA money for non-medical purposes (vacations, bills, shopping) without realizing this creates taxable income plus a 20% penalty. Solution: Only use HSA distributions for qualified medical expenses unless you're over 65 or disabled. If you must use funds for other purposes, set aside approximately 30–40% for taxes and penalties.

Mistake #4: Failing to Keep Adequate Documentation

Taking distributions without keeping receipts and EOB statements can lead to problems if the IRS audits your return. Without documentation, all distributions become taxable. Solution: Create a dedicated file (physical or digital) for medical receipts. Many HSA administrators offer apps to photograph and store receipts automatically.

Mistake #5: Not Understanding the Timing of Expenses

You can only receive tax-free reimbursements for medical expenses incurred after your HSA was established. Some people try to reimburse pre-HSA expenses. Solution: Check your HSA opening date. Only expenses with service dates after that date qualify for tax-free reimbursement, even if you pay the bill later.

Mistake #6: Miscalculating Distribution Codes

Form 1099-SA uses codes to indicate distribution types. Using the wrong code or misunderstanding Code 2 (excess contributions) versus Code 1 (normal distributions) can cause reporting errors. Solution: Review the distribution code carefully. If Code 2 appears, you withdrew excess contributions, which requires special reporting on Form 8889.

Mistake #7: Not Reporting “Mistaken Distributions” That Were Returned

If you took a distribution by mistake and returned it to your HSA by April 15 following the year you discovered the error, it's not taxable—but only if properly documented. Solution: Work with your HSA administrator to properly handle and document mistaken distributions that you return to the account.

What Happens After You File

Immediate Processing

Once you file your tax return with Form 8889 attached, the IRS processes both forms together. Your Form 1099-SA information is matched against what the IRS received from your HSA administrator.

IRS Matching Program

The IRS uses an automated system to match the distributions reported on your Form 1099-SA with what you reported on Form 8889. If there's a discrepancy (you forgot to report a distribution or reported a different amount), you'll typically receive a CP2000 notice within 12–18 months. This notice proposes changes to your tax return and calculates additional tax, penalties, and interest owed.

If You Reported Correctly

If your distributions were properly reported and used for qualified medical expenses with adequate documentation, no further action is needed. The IRS rarely questions properly reported HSA distributions unless they seem unusually large or inconsistent with your income and health coverage.

If You Made Errors

If you discover an error after filing, file Form 1040-X (Amended U.S. Individual Income Tax Return) as soon as possible. Include a corrected Form 8889 and an explanation of the changes. If you owe additional tax, pay it with your amended return to minimize interest charges.

Refund Timing

If your HSA deduction or correction results in a refund, expect to wait 6–8 weeks for paper returns or 3 weeks for e-filed returns during normal processing times. Amended returns take significantly longer—typically 16–20 weeks.

Audit Risk

HSA distributions have moderate audit risk. The IRS is particularly interested in large distributions relative to income, distributions reported as 100% qualified medical expenses without adequate documentation, or patterns suggesting non-medical use. If audited, you'll need to provide original receipts and documentation proving expenses were qualified.

Long-Term Record Keeping

Maintain your Form 1099-SA, Form 8889, and all supporting receipts for at least six years. While the normal statute of limitations is three years, the IRS has six years for substantial underreporting (more than 25% of income).

FAQs

Q1: Do I have to report Form 1099-SA if all my distributions were for qualified medical expenses?

Yes, absolutely. Even if 100% of your distributions were for legitimate medical expenses, you must still report the form by completing Form 8889. The form shows the IRS that you're properly tracking your HSA distributions and establishes that they were used correctly. Failing to report the form can trigger an IRS notice, even if no tax is owed.

Q2: What if I used HSA money for non-medical expenses—how much will I owe?

You'll owe regular income tax on the non-qualified distribution at your marginal tax rate, plus an additional 20% penalty if you're under 65 and not disabled. For example, if you're in the 22% tax bracket and withdrew $1,000 for non-medical purposes, you'd owe approximately $220 in income tax plus $200 in penalties (total $420). The tax and penalty are calculated on Form 8889, Part III.

Q3: I forgot to include my 1099-SA on my original tax return. What should I do?

File an amended return (Form 1040-X) with a corrected Form 8889 as soon as possible. If the distributions were all for qualified medical expenses, you likely won't owe additional tax, but you still need to amend to avoid potential IRS notices. If you discover this error before the IRS does, penalties are typically minimal or waived. Include an explanation with your amended return.

Q4: Can I reimburse myself for medical expenses I paid earlier in the year?

Yes, you can reimburse yourself for qualified medical expenses you paid out-of-pocket, as long as the expenses were incurred after you established your HSA. There's no time limit—you could reimburse yourself years later, as long as you have proper documentation and the expense was incurred after your HSA opening date. Keep receipts indefinitely for expenses you plan to reimburse later.

Q5: What's the difference between Form 1099-SA and Form 5498-SA?

Form 1099-SA reports distributions (money you took out of your HSA) and is used to complete your tax return. Form 5498-SA reports contributions (money put into your HSA) and is primarily informational. You'll receive Form 5498-SA later (by May 31) because it includes contributions made through the tax filing deadline. You report contributions on Form 8889, Part I, but generally don't attach Form 5498-SA to your return.

Q6: Are insurance premiums considered qualified medical expenses for HSA purposes?

Generally no, with important exceptions. You usually cannot use HSA funds tax-free to pay health insurance premiums. However, premiums for long-term care insurance, COBRA continuation coverage, health insurance while receiving unemployment benefits, and Medicare premiums (Parts A, B, D, and Medicare Advantage) are qualified medical expenses. Regular employer-sponsored or marketplace health insurance premiums are not qualified.

Q7: What happens if my HSA administrator sent me a corrected Form 1099-SA after I already filed my taxes?

Review the corrected form carefully. If the changes affect your tax liability (different distribution amounts or codes), you'll need to file an amended return using Form 1040-X with a corrected Form 8889. If the corrections are minor administrative changes that don't affect your tax calculation, you may not need to amend—but keep the corrected form with your records. When in doubt, consult a tax professional to determine if amendment is necessary.

Additional Resources

Sources:

• IRS 2020 Instructions for Forms 1099-SA and 5498-SA
• IRS Publication 969 (2020) - Health Savings Accounts and Other Tax-Favored Health Plans
• IRS About Form 1099-SA

This guide provides general information based on IRS publications. For specific tax advice related to your situation, consult a qualified tax professional.

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