Form 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA (2023)

What Form 1099-SA Is For

Form 1099-SA is an official tax document that reports money you withdrew from your Health Savings Account (HSA), Archer Medical Savings Account (Archer MSA), or Medicare Advantage Medical Savings Account (MA MSA) during the 2023 tax year. Think of it as a receipt from your bank showing how much you took out of your health savings account.

You'll receive this form from your account trustee or custodian—typically your bank, insurance company, or the financial institution that holds your account. The form reports all distributions (withdrawals) made during the year, whether you paid a medical provider directly or received the money yourself. This includes payments for doctor visits, prescriptions, hospital care, or any other purpose you used the funds for.

The IRS requires this form because while contributions to these accounts are tax-advantaged, the government needs to track whether you used withdrawals for qualified medical expenses (which are tax-free) or for other purposes (which may be taxable and subject to penalties). Your account administrator must send you Copy B of the form by January 31, 2024, and they file Copy A with the IRS.

IRS.gov Form 1099-SA Information

When You’d Use This Form (Late/Amended Filing)

Standard Filing Timeline: If you received Form 1099-SA for 2023, you'll use the information when filing your 2023 tax return, which is due April 15, 2024. You'll report the distribution details on Form 8889 (for HSAs) or Form 8853 (for Archer MSAs), which accompany your Form 1040.

Late Filing: If you didn't file your 2023 return by the April deadline, you should file as soon as possible to minimize penalties and interest. Even if you missed the deadline, you still must report your 1099-SA distributions. The IRS receives a copy of your form, and failing to report it can trigger an audit or notice.

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

• You discover an error in how you reported your 1099-SA distributions
• You initially claimed a distribution was for qualified medical expenses but later learned it wasn't
• You received a corrected 1099-SA from your account administrator after filing
• You forgot to include the form entirely on your original return

For amended returns related to 1099-SA errors, you generally have three years from the original filing date to correct the return. Include the corrected Form 8889 or 8853 with your amended return and explain the changes.

Mistaken Distributions: The IRS provides relief for truly mistaken distributions. If you withdrew money believing it was for a qualified medical expense but discovered the error, you can return the funds to your HSA by the due date of your tax return (not including extensions). In this case, the distribution isn't taxable or subject to penalties, and your account administrator should issue a corrected 1099-SA. According to IRS Notice 2004-50, trustees may rely on the account beneficiary's statement that the distribution was a mistake.

IRS.gov Instructions for Form 1099-SA

Key Rules or Details for 2023

Distribution Codes

Your Form 1099-SA includes a distribution code in Box 3 that identifies the type of withdrawal. Understanding these codes is essential:

• Code 1 (Normal Distribution): The most common code, used for regular withdrawals to you or direct payments to medical providers. This code applies when no special circumstances exist.
• Code 2 (Excess Contributions): Indicates you withdrew excess contributions and their earnings. These distributions have special tax treatment.
• Code 3 (Disability): Used if distributions occurred after you became disabled under section 72(m)(7), which exempts you from the 20% penalty.
• Code 4 (Death Distribution): For payments to a deceased account holder's estate in or after the year of death.
• Code 5 (Prohibited Transaction): Rare code indicating the account ceased to be a qualified HSA/MSA due to prohibited activities under sections 220(e)(2) and 223(e)(2).
• Code 6 (Death Distribution to Non-Spouse): For beneficiary distributions to non-spouse beneficiaries after the account holder's death.

Tax Treatment

The critical rule for 2023 distributions is simple: if you used the money for qualified medical expenses, the distribution is tax-free. If you used it for non-qualified expenses, the distribution is subject to ordinary income tax PLUS an additional 20% penalty tax for HSAs (or additional tax as specified under the applicable code section).

Qualified Medical Expenses

For 2023, qualified expenses generally include amounts you paid for medical care as defined under the Internal Revenue Code. According to IRS Publication 969, these expenses include doctor visits, hospital care, dental care, vision care, prescription medications, and medical equipment. The expenses must not have been reimbursed by insurance or paid with other tax-advantaged dollars. Importantly, even if you had the expense in a previous year, you can reimburse yourself in 2023 from your HSA, provided you established the HSA before incurring the expense.

Age 65 Exception

If you're 65 or older when you take the distribution, you won't pay the 20% additional tax on non-qualified withdrawals, but you'll still owe ordinary income tax. This makes your HSA function more like a traditional IRA after age 65.

Reporting Requirement

Even if your entire distribution was for qualified medical expenses and is completely tax-free, you must still file Form 8889 with your tax return to report the distribution. The IRS requires documentation of how you used the funds.

IRS Publication 969

Step-by-Step (High Level)

Step 1: Receive Your Form 1099-SA

By January 31, 2024, your HSA/MSA administrator should mail you Form 1099-SA for 2023. If you don't receive it, contact your account provider or check your online account portal where it may be available electronically. Review the form carefully when it arrives to ensure the gross distribution amount (Box 1) matches your records.

Step 2: Gather Documentation

Collect all receipts, Explanation of Benefits (EOB) statements, and other proof of medical expenses you paid with your HSA/MSA funds during 2023. This documentation substantiates that your distributions were for qualified medical expenses. While you don't submit these with your return, you must keep them for your records in case of an IRS audit.

Step 3: Calculate Qualified vs. Non-Qualified Expenses

Compare the total distribution amount on your 1099-SA (Box 1) with your total qualified medical expenses for the year. If your qualified expenses equal or exceed your distributions, your entire withdrawal is tax-free. If you took out more than you spent on qualified expenses, the excess is taxable and may be subject to the 20% additional tax.

Step 4: Complete Form 8889 (HSA) or Form 8853 (Archer MSA)

Use your 1099-SA information to fill out the appropriate form:

• Part I: Report your contributions for the year
• Part II: Report your distributions from the 1099-SA and calculate how much was used for qualified medical expenses
• Part III: Calculate any taxable income and additional taxes

The forms walk you through the calculations line by line.

Step 5: Transfer Results to Form 1040

The taxable amount from Form 8889 or 8853 transfers to your Form 1040. Any additional 20% tax also carries to Schedule 2 (Additional Taxes) of your return. If everything was used for qualified expenses, you'll simply show zero taxable income from the distribution.

Step 6: Keep Records

Store your medical expense receipts, EOBs, and tax forms together. The IRS can request documentation to verify your qualified medical expenses, and without proper records, your tax-free distribution could be reclassified as taxable.

IRS Form 8889 Instructions

Common Mistakes and How to Avoid Them

Mistake #1: Not Filing Form 8889/8853

How to Avoid: Always file Form 8889 or 8853 with your tax return if you took any distribution, even $1. If you're filing manually, don't skip this step.

Mistake #2: Inadequate Record-Keeping

How to Avoid: Create a dedicated folder (physical or digital) for 2023 medical expenses. Save every receipt, EOB, and invoice. Maintain these records for your files.

Mistake #3: Confusing Multiple Forms

How to Avoid: Keep these forms separate and clearly labeled. Remember: 1099-SA = money OUT, 5498-SA = money IN. Note that Form 5498-SA isn't due until June, so you might file your tax return before receiving it if you contributed late in the tax year or early in 2024 for 2023.

Mistake #4: Using Distributions for Non-Qualified Expenses (Unknowingly)

How to Avoid: Before using your HSA/MSA, verify the expense qualifies by checking IRS Publication 502. When in doubt, pay out-of-pocket and research before reimbursing yourself.

Mistake #5: Missing the Opportunity to Correct Mistaken Distributions

How to Avoid: If you realize you made a non-qualified withdrawal, contact your HSA administrator immediately about returning the funds. Do this before April 15 of the year after the distribution to qualify for the mistaken distribution relief described in IRS Notice 2004-50.

Mistake #6: Ignoring the Distribution Code

How to Avoid: Check Box 3 and understand what your code means before filing. If the code seems wrong, contact your administrator for a corrected form.

Mistake #7: Double-Dipping

How to Avoid: If you itemize medical expenses on Schedule A, only include expenses you paid out-of-pocket, not those reimbursed from your HSA.

What Happens After You File

IRS Processing

After you file your return with Form 8889 or 8853, the IRS matches the information against the 1099-SA your account administrator filed. This typically happens automatically through computer systems. If everything matches and you properly documented your qualified medical expenses, you likely won't hear anything further.

Potential IRS Notices

If there's a discrepancy between what you reported and what your account administrator reported, or if your return raises questions, you may receive:

• CP2000 Notice: Proposes additional tax, suggesting you didn't report income shown on your 1099-SA
• Letter 12C or 525: Requests additional information about your HSA distributions and qualified medical expenses
• Audit Notice: For more serious discrepancies

Responding to IRS Inquiries:

• Don't panic—many notices result from simple mismatches or data entry errors
• Gather your documentation (receipts, EOBs, forms)
• Respond by the deadline shown on the notice (usually 30 days)
• If you made an error, you may owe additional tax, penalties, and interest
• If the IRS made an error, provide documentation to support your original return

Refunds or Additional Tax

If you correctly reported a taxable distribution on your return, any tax owed would have been calculated when you filed. If you discover later that a distribution should have been taxable (or non-taxable), you'll need to file an amended return.

State Tax Implications

Most states follow federal tax treatment for HSA distributions, meaning qualified distributions are tax-free at the state level too. However, some states don't conform to federal HSA rules. Check your state's Department of Revenue website for specific guidance.

Account Administrator Follow-Up

Your HSA administrator typically sends Form 5498-SA by June reporting your year-end account balance and contributions. This arrives after the tax filing deadline because it includes contributions made by April 15, 2024, for 2023.

Future Year Planning

After filing, review whether you took distributions efficiently. Consider whether you should take more frequent smaller distributions matched to expenses rather than large periodic withdrawals, as better record-keeping and matching typically reduces the risk of IRS questions.

FAQs

Q1: I received a 1099-SA but only used the money for medical expenses. Do I still need to report it?

Yes, absolutely. Even if 100% of your distribution was for qualified medical expenses and is completely tax-free, you must still report it on Form 8889 (for HSAs) or Form 8853 (for Archer MSAs) when filing your tax return. The IRS receives a copy of your 1099-SA and expects to see it reported. Failing to file these forms is one of the most common mistakes and can trigger IRS notices. The good news is that if you properly document that you used all the funds for qualified medical expenses, you won't owe any additional tax—but you must still complete the forms to show this to the IRS.

Q2: What if I took money out for non-medical purposes? How much will I owe?

If you withdrew funds for non-qualified expenses, you'll face two levels of taxation. First, you'll pay ordinary income tax on the amount used for non-qualified purposes—this means the withdrawal gets added to your taxable income as if it were wages or other income. Second, if you're under age 65, you'll also pay an additional 20% tax on the non-qualified amount. For example, if you're in the 22% tax bracket and withdrew $1,000 for non-medical purposes at age 45, you'd owe approximately $220 in income tax plus $200 in additional tax, totaling $420. However, if you're 65 or older, you'll only pay the ordinary income tax without the 20% additional tax.

Q3: I lost my receipts. Can I still claim the distributions were for medical expenses?

Technically yes, but you're taking a significant risk. The IRS doesn't require you to submit receipts when filing your return, so you can report distributions as qualified medical expenses on Form 8889 or 8853. However, the IRS can audit your return and request documentation proving your expenses were qualified. Without receipts, EOBs, or other proof, the IRS will likely disallow your claim and assess taxes and penalties on the entire distribution. If you've lost receipts, try to reconstruct your records by requesting itemized bills from medical providers, downloading transaction history from your HSA portal, obtaining EOB statements from your health insurer, or retrieving prescription records from your pharmacy. Start gathering this documentation now rather than waiting for an IRS notice.

Q4: Can I take money out this year to reimburse myself for medical expenses from previous years?

Yes, this is one of the powerful features of HSAs. According to IRS Publication 969, you can reimburse yourself for qualified medical expenses incurred in any prior year, as long as you established your HSA before incurring the expense. There's no time limit—if you had a qualified medical expense in 2015 and opened your HSA in 2014, you could reimburse yourself in 2023 or later. The key is maintaining detailed records of all unreimbursed qualified medical expenses with receipts showing dates of service and proof the expenses weren't reimbursed elsewhere or deducted. This strategy doesn't work with Archer MSAs or MA MSAs—only HSAs allow unlimited look-back periods.

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

These two forms report opposite transactions for your HSA or MSA. Form 1099-SA reports distributions (money coming OUT of your account), while Form 5498-SA reports contributions (money going INTO your account). You'll receive the 1099-SA by January 31, 2024, for 2023 distributions, and you must report this on your tax return using Form 8889 or 8853. Form 5498-SA isn't due until June 2024 because it includes contributions made by April 15, 2024, for the 2023 tax year. Interestingly, you don't need Form 5498-SA to file your tax return—you should already know how much you contributed from your own records, pay stubs, and bank statements. The 5498-SA primarily serves as a confirmation and helps the IRS verify contributions reported on your return. Think of it as: 1099-SA = report immediately on your tax return; 5498-SA = confirmation document that arrives later.

Q6: My employer made contributions to my HSA. How does that affect my 1099-SA?

Employer contributions don't affect your Form 1099-SA at all—that form only reports distributions (withdrawals) from your account. However, employer contributions do affect your overall HSA tax situation and appear in your W-2 (Box 12, Code W) and on Form 5498-SA. The total of your personal contributions plus employer contributions cannot exceed the annual limit ($3,850 for self-only coverage or $7,750 for family coverage in 2023, plus $1,000 if you're 55 or older). When completing Form 8889, you'll report both your contributions and employer contributions separately, and the form calculates whether you exceeded limits. Excess contributions are subject to a 6% excise tax until withdrawn. The key point is that employer contributions don't create taxable income when made, but they do count toward your annual contribution limit.

Q7: I turned 65 in 2023. Does this change how my distributions are taxed?

Yes, significantly. Once you reach age 65, distributions from your HSA for non-qualified expenses are no longer subject to the 20% additional tax—you only pay ordinary income tax on non-qualified withdrawals, similar to a traditional IRA. This makes your HSA much more flexible after age 65, functioning as both a medical expense account and a general retirement account. However, distributions used for qualified medical expenses remain completely tax-free at any age, so there's still an advantage to using HSA funds for medical purposes. Note that enrolling in Medicare (typically at 65) means you can no longer make new HSA contributions, though you can continue taking distributions from your existing account. Your 1099-SA for 2023 doesn't show your age, so you'll need to indicate on Form 8889 that you meet the age exception if claiming exemption from the 20% additional tax.

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