Intuit Academy Tax Practice Exam

What is a Health Savings Account's reporting requirement for distributions?

1. Should be reported on Form 1065

2. Must be reported on Form 1099-SA

3. No reporting is required

4. Must be reported on Schedule C

The correct answer is: Must be reported on Form 1099-SA

A Health Savings Account (HSA) has specific reporting requirements for distributions, and the correct choice is that these distributions must be reported on Form 1099-SA. This form is critical because it details the distributions made from the HSA to the account holder and specifies the type of distribution, which can include qualified medical expenses or other distributions that may be subject to taxes and penalties. Form 1099-SA is issued by the HSA trustee or custodian and must be provided to both the IRS and the account holder by January 31 of the following year. This reporting ensures that the IRS is aware of any distributions from the HSA, which is essential for verifying whether the withdrawals were used for qualified expenses or misused, which could lead to tax liabilities. Other reporting formats, such as Form 1065 and Schedule C, are related to partnership and business income tax reporting and are not applicable for HSAs. The option stating no reporting is required is also incorrect, as HSAs must be accurately reported to ensure compliance with IRS regulations. Through this correct reporting process, account holders can manage their tax responsibilities effectively.