My son died last November (2023), and he did not have a beneficiary named on his HSA.  I understand the entire balance will go to his estate and is fully taxable.  Where this income gets reported and tax gets paid is a little confusing.  IRS Pub 969 states, “If your estate is the beneficiary, the value is included on your final income tax return.”  Pub 559 states, “If the decedent’s estate acquires the interest (in the HSA), the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent’s final return.”

My interpretation is that I should report the FMV from last November on my son’s final 1040 due this April.  I would then report any growth between that value and what gets distributed to his estate on his estate’s 1041 (probably filed about a year from now).  I’d use Table B in Pub 559 to document this split.  Some places say all this income has to be reported on his estate’s 1041.  I suspect Fidelity (the custodian of his HSA) will send me a 1099-SA next year with the full value reported to the estate’s EIN.  Any help properly interpreting this is greatly appreciated!!!