Health Savings Account Blog                  

One senior Department of Health and Human Services (HHS) official, who asked not to be identified, says he was befuddled by Intuit Inc.’s TurboTax when he recently sat down for his annual taxpayer rite. He couldn’t find the prompt for a Health Savings Account deduction on TurboTax’s 1040 form.

“In prior years, the system logic just defaulted me to the form where I have spent a grand total of 30 seconds entering my information,” says the official. In frustration, he reached TurboTax’s technical support.

“When I asked him why they had changed their system logic, he told me that he didn’t know,” the official says. “When I pointed out that entering my contributions had saved me $900, but that there were likely taxpayers who didn’t understand that they would need to look for the form and would wind up overpaying their taxes due to TurboTax’s negligence, I was greeted with silence.”

Searching TurboTax’s help files, consultant and former White House health policy advisor Roy Ramthun found the answer — Health Savings Accounts are addressed under “misc. income” rather than “misc. deductions.” “I’m not sure why TurboTax would put it this way,” says Ramthun, of Silver Spring, Md.-based HSA Consulting Services. “I would think it would be more obvious that it is ‘misc. deductions.’”

Turner says that the problem is so widespread that companies have sent out bulletins to their employees instructing them how to handle the HSA deduction with TurboTax.

Electronic Tax Filing on the Rise

According to the IRS, more Americans file their federal taxes electronically than use old-fashioned paper. Problems with HSA deductions will likely increase in the future as growing numbers of taxpayers sign up for HSA-based health plans and file taxes electronically.

According to Mountain View, Calif.-based Intuit, Americans bought almost 9.4 million copies of this year’s TurboTax software.

Calls to H&R Block Inc., Jackson Hewitt Tax Service Inc., Liberty Tax Service and other tax-preparation services failed to reveal similar problems with HSA deductions.

H&R Block markets the other leading tax software product, Tax Cut. A company spokesperson denies that HSA-deduction problems have been reported with the product.

Bob Meighan, vice president of Intuit’s consumer tax group, says that TurboTax has received no complaints about the deductions and that detailed information about HSAs is readily available by searching on any TurboTax screen.

“This is the first I’ve heard about it,” he tells ICDC. “If people are having a difficult time, frankly I’m surprised. If you put in any logical term in the search window on every single screen, it will tell you exactly where you go. Whether you think it is income or a deduction, if you search it will be on the very first screen.”

Meighan says that TurboTax technical support staff are trained to help customers use the software but are not tax-preparation experts and shouldn’t be expected to know the particulars of every tax deduction. “If you ask the average American what an HSA is, they aren’t going to know either,” he says. “They don’t come up all that much.”

Intuit has no plans to overhaul TurboTax for next year, but is speaking with Ramthun and others stymied by the HSA deduction and may end up tweaking its product, Meighan says.

“We’re listening to the feedback,” he says. “If we need to break things out better, we’ll do it.”

Jackie Perlman, tax researcher with H&R Block’s Tax Institute, suggests that the novelty of HSAs and their inherent complexity are the root of the problem for tax preparation.

“Health savings accounts are still fairly new,” she says. “They are the marriage of two very complicated things — taxes and insurance.”

Pearlman says that one of the problems is that IRS forms and coding were adapted from the old-style medical savings accounts. “They are confusing,” she says. “Unfortunately, a lot of people could be missing out on a great deduction."