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How do I set up an HSA account to properly associate contributions with a tax form/line?

I have an account set up to track HSA contributions from my paycheck and then investment and spending of those funds. Because the contributions are tax exempt (deductible, or whatever the proper terminology is), I want them to show up on a tax report. There doesn't seem to be a way to do this. I currently have the account set up as a "Retirement" account using the "Tax Schedule" information as "Form 1040:Educator Expense" for transfers in since that seems to be the closest I can get to a proper characterization, and "Schedule A:Medical" for payments made from the account.

Is there a better way? When will Quicken incorporate HSA realities? "Fudging" it like I am restricts me from importing data into Turbo Tax, especially since my state (CA) treats HSA contributions differently than the IRS does.

Best Answer

  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Accepted Answer
    In the Paycheck dialog, you can click on Add pre-tax deduction then pick Other pre-tax deduction at the bottom of the list to handle your HSA contribution.

    The type of account to use for the HSA itself depends on the HSA features you are using and whether you are able to download the HSA transactions. Different HSA providers use different combinations of accounts to handle the savings/spending and investing features of HSAs.

    If you are using the investing features, setting the account up as a Roth IRA comes closest to how it is treated tax-wise - gains and withdrawals are not taxed.

    Because Quicken does not really support HSAs, I do not think you will be able to get it to generate a clean file to import into TurboTax, especially when it comes to state taxes.

    If you want Quicken to improve its handling of HSAs, please go to this Idea thread
    https://community.quicken.com/discussion/7867322/implement-health-savings-accounts-hsa-6-merged-votes
    and add your vote and comments by clicking on the up arrow in the big blue box at the top of the thread. 
    QWin Premier subscription

Answers

  • Frankx
    Frankx SuperUser ✭✭✭✭✭
    edited December 2020
    Hi @kformella,

    The way a HSA account works is as follows:

    1) the employer deducts amounts from your gross pay/earnings - on a "pre-tax" basis - and they go into your HSA account to be used to pay qualified medical expenses.  The important thing to know is that, because these amounts are pre-tax they will not show up on your W-2 form.

    2) As you make payments for qualified medical services, such as doctor visits, hospital changes, Rx medicines, etc. you use the funds in the HSA account.  The important thing to know about these payments/expenses is that because you are paying for them with "pre-tax" money, they may not be deducted on your tax return.

    Because the money deducted from your gross wages is not taxed (i.e. it is not included in your "Federal Taxable Wages") - there is no need for it to be assigned a tax schedule line in Quicken. This also applies to the medical expenses - because the funds used to pay for medical expenses were not subject to tax, the expenses may not be deducted on your personal Federal tax return.   

    For state income tax purposes, my understanding is that California doesn't allow the exclusion of income for HSA's and requires that the deductions from gross pay/earnings be added back to taxable income on a personal tax return. So that means that any medical expenses paid during the year should be deductible on a CA state income tax return.

    Frankx


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  • Yes, I understand how all that works. I am a certified tax preparer and I know how these items are treated for tax purposes. What I want to know is how do I get Quicken to report them properly so that I do not have to manually adjust numbers when I import them into Turbo Tax?

    Bottom line:
    I can force the federal calculation I need by characterizing the HSA and FSA accounts as educator expenses but this does not help with the CA adjustment necessary for an HSA and I still have to manually calculate that adjustment. Sure, I know this is a simple calculation but as robust as Quicken is, I cannot believe that proper HSA and FSA entries and tax summaries are not possible so I'm trying to learn how to do them. The FSA is of course less of a concern since it is use-or-lose, except for a nominal rollover amount.

    Details:
    I track my gross pay and all deductions, etc. I have money from my "Paycheck" entry going into the HSA account as well as to a 401(k) account, an FSA account, and an ESPP account. I also have the gross pay reduced by taxes and pre-tax deductions for medical benefits. Transfers to the ESPP are post-tax, and transfers to the 401(k), HSA, and FSA are pre-tax. All of these deductions and allocations reduce my gross pay to a net amount that is deposited into my checking account. All that works just fine.

    The problem arises every year when I generate my tax reports, which I am preparing now. Some of my numbers never match what I eventually see on my W-2 because I cannot get certain things tracked properly as they relate to taxes.
    My gross pay is correct, as are all of my tax, Medicare, SDI, and benefits payments. My ESPP contributions do not reduce my taxable income and they should not, and all ESPP transactions properly reflect the tax basis and any resulting income benefit. My 401(k) contributions (Paycheck additions to my 401(k) account are totaled correctly for both my own contributions and the employer match and my taxable income is reduced accordingly for only my contributions. I expect paycheck additions to my HSA and FSA accounts to be handled similarly but they are not because I don't know how to characterize the accounts like I can for a 401(k), IRA, etc. I have to manually reduce my gross pay total by the sum total contributed to the HSA and FSA because there doesn't seem to be an appropriate tax schedule entry for them - like there IS for the 401(k).
  • Additional information: I just double-checked my configurations and noted that, beginning this year I've been using the "Paycheck" option to enter paycheck information. Years ago, before that was a feature, I had it set up manually with various items going to various accounts and categories to get as close as I could with totals. The "Paycheck" feature makes it a whole lot easier and I no longed have to characterize my 401(k) account additions as tax deductible. That happens automatically now with the Paycheck entry. Still, under the "add Pre-Tax Deduction" option there is an FSA choice which I also now use, but there is still no HSA choice. This is ideally what I'm looking for!
  • twarner1
    twarner1 Member ✭✭✭
    I agree, Quicken should accommodate HSA accounts into their software.  HSAs have been around since 2004 and Quicken still hasn't incorporated them properly into their software.
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    Accepted Answer
    In the Paycheck dialog, you can click on Add pre-tax deduction then pick Other pre-tax deduction at the bottom of the list to handle your HSA contribution.

    The type of account to use for the HSA itself depends on the HSA features you are using and whether you are able to download the HSA transactions. Different HSA providers use different combinations of accounts to handle the savings/spending and investing features of HSAs.

    If you are using the investing features, setting the account up as a Roth IRA comes closest to how it is treated tax-wise - gains and withdrawals are not taxed.

    Because Quicken does not really support HSAs, I do not think you will be able to get it to generate a clean file to import into TurboTax, especially when it comes to state taxes.

    If you want Quicken to improve its handling of HSAs, please go to this Idea thread
    https://community.quicken.com/discussion/7867322/implement-health-savings-accounts-hsa-6-merged-votes
    and add your vote and comments by clicking on the up arrow in the big blue box at the top of the thread. 
    QWin Premier subscription
  • Thanks Jim. You confirmed my findings - that the "right" way doesn't exist. I like your Roth idea as a next best alternative. I already have the Paycheck "Other Pre-Tax Deduction" set up and going to an account in my retirement section (of Quicken Home & Business) and I simply characterized additions to that account as "educator expenses" so that they would at least bubble up on my report. The Roth idea can serve the same purpose but will also help with the taxable disposition of the investment gains. Thanks for the feedback.
  • kjosh
    kjosh Member
    For pre-tax deductions from a paycheck to show up correctly in the tax reports you must associate the "W-2:Salary or wages" tax line with the category.

    1: Goto Tools-Category List
    2: Find the category that you want to associate with your pre-tax deduction (i.e health insurance)
    3: Associate the tax line item mentioned above, by editing the category.
    Right Click - Edit - Tax Reporting - "W-2:Salary or wages"
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