As a trustee or custodian of a health savings account (HSA), Archer medical savings account (Archer MSA), or Medicare Advantage MSA (MA MSA), you are required to report distributions made to account holders or medical service providers. According to the official IRS Instructions for Forms 1099-SA and 5498-SA, these obligations require accurate tracking of standard distributions, excess contributions, and special circumstances like the death of an account holder. This guide outlines the institutional requirements for preparing and furnishing Form 1099-SA for tax year 2026 reporting, executed in early 2027.
Custodian Reporting Requirements
Trustees and custodians must file a separate Form 1099-SA for each plan type maintained for a recipient. Ensure that you distinguish between agency filing and furnishing payee statements based on the reporting year official guidance. The IRS enforces an aggregated e-filing threshold of 10 or more information returns. When determining your e-file requirements, count all information return types. For 2026 reporting, custodians utilize the continuous-use April 2025 revision of Form 1099-SA alongside the 12/2026 instructions to file in early 2027. If you process a low volume and file on paper, ensure you use the official scannable forms. Payee statements may use truncated taxpayer identification numbers (TINs), but the trustee's TIN must never be truncated on any documentation.
Reportable Distributions and Excluded Transfers
Form 1099-SA strictly reports distributions paid directly to a medical service provider or the account holder. However, custodians must exclude specific transactions from this reporting. Do not report trustee-to-trustee transfers from one Archer MSA to another, from an Archer MSA to an HSA, or between two HSAs. Additionally, the withdrawal of excess employer contributions (and earnings on them) returned to an employer from an employee's HSA is not reported in Box 1. Custodians must capture the gross distribution amounts without determining the taxability of the funds or auditing individual qualified medical receipts.
Custodian Policies on Mistaken Distributions
If an account beneficiary withdraws amounts from an HSA due to a reasonable mistake of fact, they may wish to repay the funds. As a trustee or custodian, you are not mandated to allow beneficiaries to return mistaken distributions. However, if your institutional policy permits such repayments, you may rely on the account beneficiary's statement that the initial distribution was a mistake. If a mistaken distribution is repaid, do not report it on Form 1099-SA. If the form was already filed before the repayment was made, you must correct the filed Form 1099-SA with the IRS and the account beneficiary. Importantly, never treat this repayment as a new contribution or rollover on Form 5498-SA.
Distributions Upon the Death of an Account Holder
Custodians must navigate specific rules when an account holder dies, depending on the beneficiary designation. For HSAs and Archer MSAs, if the designated beneficiary is the surviving spouse, the spouse assumes ownership of the account. For MA MSAs, it is treated as an Archer MSA of the spouse for distribution purposes.
If the designated beneficiary is not the spouse, or if there is no named beneficiary, the account ceases to be an HSA or MSA on the date of death. You must report the fair market value (FMV) of the account on the date of death in Box 4. Apply the death-year or after-year-of-death instructions to the actual beneficiary and event. The death-year distribution rule uses Code 4. For the applicable after-year-of-death case, the instructions identify Code 1 for a spouse, Code 4 for an estate, or Code 6 for a nonspouse beneficiary, and require the form for the year the custodian learned of the death. Report the required date-of-death FMV in Box 4; the specified reduction for the decedent's qualified medical expenses paid within one year applies to payments from the HSA. Keep the death date, date learned, beneficiary identity and distribution date available for this review.
Account Closures Under the USA PATRIOT Act
Financial institutions may be forced to close an HSA if the participant fails to satisfy the Customer Identification Program requirements outlined in section 326 of the USA PATRIOT Act. If you close an account for this reason and distribute the funds to the participant, this event is reportable. You must enter the gross distribution in Box 1. If no earnings are distributed, enter zero in Box 2. If earnings are distributed, enter the exact earnings in Box 2. For these specific compliance closures, you must enter Code 2 in Box 3.
Form 1099-SA Box-by-Box Comparison Table
| Box Number | Data Field | Custodian Instructions |
|---|---|---|
| Box 1 | Gross Distribution | Enter total distribution amount, including earnings from Box 2. Do not enter negative amounts. |
| Box 2 | Earnings on Excess Contributions | Enter earnings distributed with excess HSA or Archer MSA contributions returned by the account holder's tax return due date; include those earnings in Box 1. |
| Box 3 | Distribution Code | Enter Code 1 through 6. Code 1 is for normal distributions. Code 2 is for excess contributions. |
| Box 4 | FMV on Date of Death | Apply the date-of-death FMV instructions, including the beneficiary and timing rules described above. |
| Box 5 | Account Checkbox | Check the corresponding box to indicate whether the plan is an HSA, Archer MSA, or MA MSA. |
Fictional Business Numerical Example
The following labeled fictional business numerical example demonstrates how a custodian should report a distribution of excess contributions and their earnings.
Scenario: In 2026, account holder John Doe realizes he made an excess contribution of $1,500 to his HSA. He requests a return of the excess contribution from his custodian, Apex Financial Custodians. The custodian calculates the net income attributable to this excess contribution to be $125. Apex Financial distributes a total of $1,625 back to John before the due date of his tax return.
Custodian Reporting Actions:
- Box 1 (Gross Distribution): Apex Financial enters $1,625.00 (the $1,500 excess contribution plus the $125 in earnings).
- Box 2 (Earnings on Excess Contributions): Apex Financial enters $125.00. This is the portion of Box 1 that represents the earnings.
- Box 3 (Distribution Code): Apex Financial enters Code 2, which specifically designates the distribution of excess contributions.
- Box 5 (Checkbox): Apex Financial checks the HSA box.
Frequently asked questions
Does our institution report trustee-to-trustee transfers on Form 1099-SA?
No. Do not report trustee-to-trustee transfers from one Archer MSA or MA MSA to another, from an Archer MSA to an HSA, or from one HSA to another HSA on this form. For reporting purposes, distributions do not include these transfers.
Are custodians legally required to allow beneficiaries to return mistaken distributions?
No. The IRS stipulates that trustees or custodians do not have to allow beneficiaries to return a mistaken distribution. If permitted by your institution's policy, you may rely on the beneficiary's statement that it was a reasonable mistake of fact.
How do we correct a mistaken distribution that was already submitted to the IRS?
If you become aware of a mistaken distribution after reporting it, you must correct the filed Form 1099-SA with the IRS and provide the updated form to the account beneficiary as soon as possible.
What distribution code is used when closing an account due to USA PATRIOT Act compliance failures?
If an HSA is closed due to a failure to satisfy Customer Identification Program requirements, custodians must enter the gross distribution in Box 1 and enter Code 2 in Box 3.
Is there a minimum dollar threshold for issuing Form 1099-SA?
The official instructions do not specify a minimum dollar threshold for distributions. Custodians must file a separate return for each plan type from which any reportable distributions were made during the year.
Source: Official issuer instructions and reporting guidance. Reviewed September 5, 2026; verify the applicable revision and reporting-year deadlines before release.
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