The Healthcare Saving Account is one of the sources of untaxed income that must be reported as “Other Untaxed Income” on the FAFSA.
Healthcare Savings Accounts (HSAs) resemble tax-deferred pension and savings plans; for example, the balance in an HSA persists from year to year. Therefore, treat tax-free contributions to an HSA as untaxed income. The balance in the account does not count as an asset, nor would distributions from it count as untaxed income when they are used for qualified medical expenses. If distributions are not used for qualified expenses, they are subject to income tax (and a possible penalty) and will be counted in the adjusted gross income.
The Healthcare Savings Account deduction can be found on line 25 of the 1040 and also on page 2 of the IRS Tax Return Transcript, just before the AGI.