Form 1099-SA: HSA Distribution Codes Explained
Form 1099-SA reports your HSA distributions to the IRS. Box 3 shows your distribution code. Code 1 is for normal distributions to you or medical providers.
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Short answer
Code 1 on Form 1099-SA means a normal HSA distribution, paid to you or straight to a provider. The IRS says to use it "if no other code applies."
The code doesn't decide your tax bill. What you spent the money on does. Qualified medical spending is tax-free, and anything else is income plus a 20% additional tax.
What Form 1099-SA Reports
Form 1099-SA lists every distribution your HSA trustee paid out during the year. The instructions say the form reports distributions from an HSA, an Archer MSA or a Medicare Advantage MSA, and your trustee sends it early in the year.
Have more than one HSA? Each trustee files its own form. Box 3 on each one carries a distribution code, and you'll need it when you fill out your return.
Box 3: The Six Distribution Codes
Box 3 holds one of six codes, and each one names the reason for the payout. Code 1 is the one nearly everyone sees.
Code | Reason | What the IRS says |
|---|---|---|
1 | Normal distribution | |
2 | Excess contributions | "Use this code for distributions of excess HSA or Archer MSA contributions to the account holder." |
3 | Disability | Payouts made after the account holder became disabled. |
4 | Death, paid to an estate | "Use this code for payments to a decedent's estate in the year of death." |
5 | Prohibited transaction | Used when the trustee reports a prohibited transaction involving the account. |
6 | Death, nonspouse beneficiary |
Code 1 covers any ordinary withdrawal, so it doesn't say whether the money went to a doctor or a vacation. Your own receipts answer that. Spouse beneficiaries who inherit an HSA generally treat it as their own, so they don't usually get a death code at all.
How Tax Works on Distributions
Your tax depends on how you spent the money, not on the Box 3 code.
Distributions for qualified medical expenses
Publication 969 says that if you use an HSA distribution "for qualified medical expenses, you don't pay tax on the distribution." You still report it on Form 8889.
Distributions for everything else
Spend it on something that isn't a qualified medical expense and the distribution is taxable. You also owe "an additional 20% tax on the part of your distributions not used for qualified medical expenses."
The 20% tax doesn't apply if you're disabled or 65 or older, or if the payout happens after death. The income tax still does.
Reporting on Form 8889
Form 8889, Part II is where distributions go on your return. Per the Form 8889 instructions, you file it with your Form 1040, 1040-SR or 1040-NR whenever your HSA had any activity that year.
Add up the distributions from every Form 1099-SA. Then subtract the part you spent on qualified medical expenses. What's left is taxable, plus the 20% tax unless an exception applies.
Keep receipts for each withdrawal. They don't go in with your return, but you'll need them if you're ever asked how you split the total.
Want the rules on timing and how to pay yourself back? See HSA withdrawal rules.
Edge Cases and Common Mix-Ups
A code 1 payout spent on non-medical items
Code 1 can still be fully taxable. If you took $1,000 out for a weekend trip, the trustee reports it as a normal distribution and you owe tax and the 20% add-on anyway.
Form 1099-SA versus Form 5498-SA
Form 1099-SA reports money that left your HSA. Form 5498-SA reports contributions that went in, and trustees file it later, after the contribution deadline for the year has passed. Between them you see the full year.
Code 2 and excess contributions
A code 2 means the trustee paid back contributions that went over your limit. Publication 969 covers the 6% excise tax that applies each year an excess stays in the account. Pulling the excess and its earnings out by your filing deadline, extensions included, avoids it. The earnings are taxable income. More in excess contributions.
Worked Example
Say your trustee sends one Form 1099-SA for 2026. It shows $8,000 in code 1 distributions. Here's where the money went:
$3,500 for dental work, a qualified medical expense
$2,000 for physical therapy, also qualified
$2,500 for a vacation, which doesn't count
On Form 8889, Part II, you report the $8,000 total. The $5,500 spent on care is tax-free. The $2,500 is taxable income at your ordinary rate, and the 20% additional tax adds $500 on top. If you were 66, the $500 would drop away but the income tax would stay.
Where Reimbursement Fits
If you paid for care out of pocket and haven't yet taken the money out of your HSA, reimbursing yourself from the account turns that distribution into a tax-free one. Burst files claims for eligible purchases and the money is paid to you from your account, not into it. Keep the receipt either way, because the distribution on your Form 1099-SA has to match real expenses.
Where Burst fits
A few things in this world are reimbursable only with a letter of medical necessity, such as a gym membership, massage therapy or a piece of fitness or recovery equipment tied to a diagnosed condition. For those, Burst writes the letter and files the claim for $35, and refunds it if no letter is issued or the claim is denied. See how a letter works.
Frequently asked questions
What does distribution code 1 mean?
Code 1 is a normal distribution to you or a direct payment made on your behalf to a medical service provider. It's the most common code and means no other special circumstance applies to the distribution.
Does the distribution code tell me if I owe tax?
No. The code tells you the reason for the distribution, not whether it's taxable. A code 1 distribution is tax-free if you spent it on qualified medical expenses, or taxable if you spent it on anything else.
How do I know what qualified medical expenses are?
Qualified medical expenses are costs of diagnosis, cure, mitigation, treatment or prevention of disease under IRS Publication 502. They include doctor visits, prescriptions, dental work, medical equipment and certain other items. Keep your receipts to prove what you spent.
What is the 20% additional tax?
Use an HSA distribution on anything but a qualified medical expense and you owe income tax on it plus a 20% additional tax. The 20% part doesn't apply if you're disabled, 65 or older, or the payout happens after death.
Do I report Form 1099-SA on my tax return?
Yes. You report all HSA distributions on Form 8889, Part II, which you file with your Form 1040, 1040-SR or 1040-NR.
What is the difference between Form 1099-SA and Form 5498-SA?
Form 1099-SA reports distributions from your HSA. Form 5498-SA reports contributions to your HSA. You'll need both to track your complete HSA activity.
Keep reading: HSA withdrawal rules, How to reimburse purchases from your HSA, HSA excess contributions, and all guides on this topic.
Sources
Instructions for Forms 1099-SA and 5498-SA (Form 1099-SA purpose and distribution codes (codes 1 through 6), Form 5498-SA filing and purpose)
IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (HSA distributions, distribution taxation, additional 20% tax, Form 8889 reporting, trustee reporting, qualified medical expenses)
Instructions for Form 8889, Health Savings Accounts (Reporting distributions on Part II, tax-free distributions for qualified expenses, taxable distributions and additional tax)
IRS Publication 502, Medical and Dental Expenses (Definition of qualified medical expenses)
