HSA distribution from deceased spouse

[Margaret CPA in OH]

Client's spouse died December 2015.  In January 2016 client received the balance of HSA account and 1099 SA was in deceased spouse's name and SSN.  As the filing status is now single, how best to report this?  I put on Line 21 but is it taxable? I tried 8889 but that doesn't work as no spouse although I'm fairly certain that that amount of money plus was used for medical bills.  Ideas?  It makes a difference in client's tax.

[Roberts]

Woops - I was wrong.

It seems that your spouse is the automatic beneficiary of the balance and it is officially theirs. Even if it's in the spouses name on the 1099, I'd enter it as the client's name and SSN and make a note in the return as a paperwork error.

[Margaret CPA in OH]

Thanks, but I'm not sure about this solution.  I did some more research and, with the 1099SA in the deceased's name and ssn and code 4, it seems the estate, not the spouse (different code), was the beneficiary and should have been reported on the final tax return.  Unfortunately that was 2015. 

I will try entering all as if it was in the client's name and social, almost sure to get a matching error.  And client doesn't have an HSA.  On 8889 I put it as HSA 2 and account holder died and paid same in expenses.  The problem then is that the deceased's ssn doesn't show up so I get an error.  There is no appropriate place to put the deceased's ssn.  Okay, I unchecked the box that the account holder died.  Error gone, nasty gram eventually arriving. 

Thanks!

[Pacun]

4 hours ago, Margaret CPA in OH said:

Client's spouse died December 2015.  In January 2016 client received the balance of HSA account and 1099 SA was in deceased spouse's name and SSN.  As the filing status is now single, how best to report this?  I put on Line 21 but is it taxable? I tried 8889 but that doesn't work as no spouse although I'm fairly certain that that amount of money plus was used for medical bills.  Ideas?  It makes a difference in client's tax.

If you got 1099SA in January 2016, then you should include it on the join return they filed for 2015. (I think)

[SaraEA]

I assume the 1099SA was for 2016.  The spouse received it so should pay the tax on it (if not used for medical).  How about a Line 21 entry showing the distribution ("deceased spouse's HSA distribution") and then back out the amount used for medical expenses ("deceased spouse's medical expenses").  The IRS only knows the money went to the deceased's SS number, so it won't be looking for anything on the spouse's return.

It accurately belongs in the estate.  If there is one, report it on Form 1041 as nomineed from the deceased, then claim the medical expenses as usual.  If there isn't an estate, wait for the IRS letter and explain the situation then.

[Lion EA]

There's always an estate.  You may or may not have to file an estate tax return.  Although, with a surviving spouse, you'll want to file for portability purposes, and now the distribution.

[Margaret CPA in OH]

Thanks for all the input.  These folks were pretty low income so no 1041, definitely no estate return, all assets (mortgaged house, cars, etc.) jointly owned so not even probate. I first input it as SaraEA mentioned but wondered about it hanging out there with no reporting.  So I tried it in her name but don't feel comfortable as it isn't in her ssn although she received the money and did use it for medical. I'll go back to line 21 and even put in 1099SA in his ssn.  It's more accurate, I think.

Thanks, all!