How to Report Inherited HSA on Tax Return: A Comprehensive Guide

Reporting an inherited HSA on your tax return can seem daunting, but with the right information, it can be a straightforward process.

When you inherit an HSA, it's important to understand the tax implications and how to properly report it on your tax return.

Here are the key steps to report an inherited HSA on your tax return:

1. Determine the value of the inherited HSA: You'll need to know the fair market value of the HSA at the time of the original owner's death.
2. Include the HSA on your Form 1099-SA: This form will detail the distributions from the HSA.
3. Report the distribution on Form 8889: You will need to report the distribution from the inherited HSA on this form, specifically Part II.
4. Calculate taxes owed: Depending on how the HSA funds are used, you may owe taxes on the distribution.

Remember to keep all documentation related to the inherited HSA in case of an IRS audit.

When reporting an inherited HSA on your tax return, it’s essential to follow the guidelines carefully to ensure compliance and avoid mistakes that could lead to penalties.