When you receive a distribution from your Health Savings Account (HSA), your plan administrator will issue you a form 1099-SA, indicating the amount of the distribution.
You can total up all of your medical expenses, which should offset the distribution. Even if you normally don’t itemize your deductions, you will want to total up all of your medical expenses so that you can offset the distribution.
Qualified medical expenses, as defined by the IRS, generally include:
• Most medical care and services
• Dental and vision care
• Prescription drugs and some over-the-counter drugs that are not covered by insurance or otherwise
Your distribution will only be taxable if you have fewer medical expenses than the distribution that you took. You will have to list the excess distribution amount on the “other income” line on your tax return, and pay ordinary income tax on the amount. There is also a 20% penalty on the excess distribution, so be careful about the amount that you choose to withdraw, and make sure you are not withdrawing more than you need.