Form 1099-SA: Understanding Distributions From Your HSA, Archer MSA, or Medicare Advantage MSA (2017)
If you withdrew money from your Health Savings Account (HSA), Archer Medical Savings Account (MSA), or Medicare Advantage MSA in 2017, you should receive Form 1099-SA in the mail. This simple document reports how much money you took out—but understanding what to do with it can save you from unexpected taxes and penalties. This guide breaks down everything you need to know in plain English.
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 2017 calendar year. Think of it as a receipt from your account trustee—the bank, insurance company, or financial institution that holds your medical savings account. IRS.gov
The form itself is straightforward, showing your personal information, the payer's information, and several key boxes. Box 1 shows the gross distribution amount—the total you withdrew during 2017. Box 2 reports any earnings on excess contributions you may have withdrawn. Box 3 contains a distribution code (typically 1 through 6) that indicates the type of distribution. Box 4 shows the fair market value on the date of death, if applicable. Box 5 simply checks which type of account you have: HSA, Archer MSA, or Medicare Advantage MSA.
Here's the crucial point: receiving a 1099-SA doesn't automatically mean you owe taxes. If you used the money for qualified medical expenses—things like doctor visits, prescriptions, dental care, or medical equipment—those distributions are generally tax-free. The form simply reports what you withdrew; you're responsible for proving on your tax return that you spent it properly.
When You’d Use Form 1099-SA (Including Late or Amended Returns)
You'll receive Form 1099-SA by January 31, 2018 if you took any distribution from your HSA or MSA during 2017. Your account trustee sends copies to both you and the IRS, so the government already knows about your withdrawal. IRS.gov
You must report this form on your 2017 tax return even if the distribution isn't taxable. This is a common misconception that leads to problems. Use Form 8889 (for HSAs) or Form 8853 (for Archer MSAs and Medicare Advantage MSAs) to report the distribution, and attach it to your Form 1040 or Form 1040NR when filing.
Late or Amended Returns
If you didn't receive your 1099-SA until after you already filed your taxes, or if you forgot to report it, you'll need to file an amended return using Form 1040X. The IRS gives you three years from the date you filed your original return (or the due date, whichever is later) to amend. For your 2017 return filed in 2018, this means you generally have until April 2021 to correct any mistakes, though acting sooner is always better to avoid complications.
If your trustee made an error on the 1099-SA, they should issue a corrected form marked "CORRECTED" in the appropriate box. Wait for this corrected form before filing your return if possible. If you've already filed, you'll need to amend your return with the correct information.
Key Rules or Details for 2017
Understanding what makes a distribution taxable or tax-free is essential. For HSAs and Archer MSAs, distributions are tax-free if you used them to pay qualified medical expenses for yourself, your spouse, or your dependents. You can even roll over an HSA or Archer MSA to another HSA tax-free. IRS.gov
For Medicare Advantage MSAs, the rules are stricter—distributions are only tax-free if used for qualified medical expenses of the account holder only, not family members.
Qualified medical expenses include most costs that would qualify for the medical and dental expenses deduction: doctor visits, hospital stays, prescription medications, dental and vision care, medical equipment, and more. However, over-the-counter medicines (except insulin) don't count as qualified expenses unless you have a prescription. IRS.gov
Insurance premiums generally don't qualify, with four important exceptions: long-term care insurance (within limits), COBRA continuation coverage, health insurance while receiving unemployment compensation, and Medicare premiums if you're 65 or older.
What if you didn't use it for medical expenses? Non-qualified distributions are included in your taxable income and usually subject to an additional 20% penalty tax. However, this penalty doesn't apply if you're disabled, 65 or older, or if the distribution occurs after death.
The distribution codes in Box 3 tell an important story. Code 1 means a normal distribution—the most common scenario. Code 2 indicates excess contributions being returned. Code 3 means you were disabled when the distribution occurred (no penalty). Codes 4 and 6 relate to death distributions. Code 5 indicates a prohibited transaction.
For 2017, HSA contribution limits were $3,400 for self-only coverage and $6,750 for family coverage, with an additional $1,000 catch-up contribution allowed if you were 55 or older. These limits matter because excess contributions can create taxable situations.
Step-by-Step (High Level)
Step 1: Receive and review your form
Check that all information is correct—your name, taxpayer identification number, the distribution amount, and the distribution code. Contact your trustee immediately if you spot errors.
Step 2: Gather your receipts
Collect documentation for all medical expenses you paid with HSA/MSA funds during 2017. While you don't submit these receipts with your tax return, you must keep them for at least three years in case of an IRS audit. Credit card statements, receipts, and explanation of benefits forms from your insurance are all valuable documentation.
Step 3: Complete the appropriate IRS form
For HSAs, complete Form 8889, entering the distribution amount from Box 1 of your 1099-SA and calculating whether any portion is taxable. For Archer MSAs or Medicare Advantage MSAs, use Form 8853 instead. These forms have line-by-line instructions to help you determine your tax liability, if any.
Step 4: Attach the form to your tax return
Include Form 8889 or Form 8853 with your Form 1040 when you file. The form will show whether you owe additional tax on your distribution and calculate any applicable penalties.
Step 5: Keep your records
Store your 1099-SA, the completed IRS form, and all supporting medical expense documentation together. The IRS can request verification of qualified medical expenses for three years after you file (longer in some cases).
Common Mistakes and How to Avoid Them
Mistake #1: Not reporting the form at all
The problem: Many people assume that because they used HSA money for medical expenses, they don't need to report anything. Wrong. The IRS received a copy of your 1099-SA and expects to see it on your return via Form 8889 or Form 8853. Failure to report can trigger automated IRS letters, potential audits, and penalties. Always report the distribution, even if it's not taxable.
Mistake #2: Claiming the medical expense deduction on Schedule A
The problem: You can't "double-dip" by taking a tax-free HSA distribution and also claiming those same expenses as itemized deductions on Schedule A. The IRS specifically prohibits this. Choose one or the other—and since HSA distributions avoid both income tax and the 7.5% (for 2017) adjusted gross income threshold for medical deductions, the HSA withdrawal is usually more beneficial.
Mistake #3: Not keeping adequate records
The problem: Many people withdraw HSA funds without saving receipts, assuming the debit card swipe is proof enough. Years later during an audit, they can't prove the expenses were qualified. Create a simple filing system: envelope, folder, or digital file where every medical receipt goes immediately. Write the date and description on each receipt. This habit prevents thousands of dollars in unexpected taxes and penalties.
Mistake #4: Forgetting about the "mistaken distribution" rule
The problem: If you withdrew money from your HSA by mistake in 2017—perhaps you thought an expense was medical when it wasn't—you can return that money to your HSA by April 15, 2018 (the 2017 tax filing deadline, which was actually April 17, 2018 due to weekends). If you do this and your trustee allows it, the mistaken distribution isn't included in income and isn't subject to the 20% penalty. However, your trustee must issue a corrected 1099-SA. This is a valuable safety valve that few people know about. IRS.gov
Mistake #5: Ignoring distribution codes
The problem: The code in Box 3 matters significantly. If your form shows code 1 (normal distribution) but you were actually disabled when you took the money, you're paying an unnecessary 20% penalty. Contact your trustee to request a corrected form with code 3. Similarly, death-related distributions (codes 4 and 6) have special tax treatment that beneficiaries often miss.
Mistake #6: Mixing up HSA years
The problem: HSAs have a unique timing rule: you can reimburse yourself for medical expenses incurred after you established your HSA, even if you wait years to take the distribution. However, expenses incurred before your HSA was established never qualify. This confuses many people who establish an HSA in 2017 and try to reimburse 2016 medical bills—those don't qualify and create taxable distributions.
What Happens After You File
After you file your 2017 tax return with the attached Form 8889 or Form 8853, the IRS processes your return and matches the reported distribution against the 1099-SA they received from your trustee. If everything matches and your math is correct, you're done—no further action required.
If you owe additional tax or penalties on non-qualified distributions, you'll pay that amount with your tax return or see it reflected in a smaller refund. The 20% additional tax for non-qualified distributions is calculated on Form 8889 or Form 8853 and flows to Form 1040 Line 62 (Other Taxes) on the 2017 return.
What if there's a problem? The IRS may send you a CP2000 notice if they believe you underreported income from your HSA/MSA distribution. This typically happens when people forget to report the 1099-SA entirely. The notice proposes additional tax, penalties, and interest. You have 30 days to respond, either agreeing with the changes or providing documentation that proves your distributions were for qualified medical expenses. This is why keeping those receipts is crucial.
If you discover an error after filing—perhaps you found medical receipts that prove a distribution was actually qualified—you can file Form 1040X to amend your return and claim a refund. You have three years from the date you filed or two years from the date you paid the tax, whichever is later.
Your 1099-SA should also be kept with your permanent tax records. The IRS generally has three years to audit your return, but in cases of substantial underreporting, they have six years. Keep your 1099-SA, completed Form 8889 or 8853, and all medical expense receipts together for at least six years after filing to be safe.
FAQs
Q1: I received a 1099-SA but didn't use my HSA at all in 2017. Is this an error?
Most likely, yes. Contact your HSA trustee immediately. They may have reported a rollover, mistaken distribution, or administrative error. Request a corrected form showing zero in Box 1, or verification that no form should have been issued. Don't ignore it—the IRS has a copy and will expect to see it reported on your return.
Q2: What if I used some HSA money for qualified expenses and some for non-qualified expenses?
You'll report the full distribution on Form 8889, then calculate the taxable portion based on your qualified medical expenses. The taxable amount (distributions minus qualified expenses) goes on your Form 1040 as other income and is subject to the 20% additional tax unless you're disabled, 65+, or another exception applies. Be precise in your calculations and keep detailed records separating qualified from non-qualified expenses.
Q3: Can I use HSA distributions from 2017 to pay medical bills from 2016 or earlier?
Yes, as long as those medical bills were incurred after you first established your HSA. You can reimburse yourself for qualified medical expenses years after they occurred, as long as the expenses happened after your HSA was set up and you haven't previously reimbursed them. Keep documentation proving the expense date and that it wasn't previously reimbursed. IRS.gov
Q4: My spouse and I both have HSAs. Do we file separate Forms 8889?
Yes, each HSA owner must file their own Form 8889. You cannot combine HSAs or file jointly for HSA purposes. Each form reports that spouse's contributions, distributions, and qualified medical expenses separately. However, one spouse's HSA can pay for the other spouse's qualified medical expenses tax-free.
Q5: I'm 66 years old. Do I still owe the 20% penalty on non-qualified distributions?
No. Once you reach age 65, the 20% additional tax no longer applies to non-qualified distributions. However, those distributions are still included in your taxable income—you just avoid the penalty. This makes HSAs function like traditional IRAs after age 65, though it's still more beneficial to use the funds for medical expenses to avoid income tax entirely.
Q6: What happens if my HSA trustee goes out of business or I can't get my 1099-SA?
Contact your trustee first using any information you have—old statements, website, customer service numbers. If they've truly disappeared, check with any successor institution (often listed on state banking websites). As a last resort, you can file your return based on your own records of distributions, noting on Form 8889 that the payer didn't provide a form. Keep detailed documentation of your attempts to obtain the form and your own records of account activity.
Q7: I paid for my daughter's braces with my HSA, but she's 24 and not my dependent anymore. Is this a problem?
It depends on when she was your dependent. The qualified medical expense rule looks at whether the person was your dependent at the time the medical expense was incurred, not when you took the distribution. If she was your dependent when the orthodontist performed the service, the expense qualifies even if you paid for it years later when she's no longer a dependent. However, if she wasn't your dependent when the expense was incurred, it's a non-qualified distribution subject to tax and penalties. IRS.gov
Sources: All information in this guide comes from official IRS publications, including the 2017 Instructions for Forms 1099-SA and 5498-SA, 2017 Form 1099-SA, and IRS Publication 969 (2017), available at IRS.gov.
