Apparently, your HSA administrator accepted your withdrawal of excess contribution as an actual “return of excess contributions” made by the deadline (perhaps they thought that you had extended your 2016 return). This is shown by the 1099-SA received in early 2017 with the distribution code of ‘2’.
If so, then you should have told TurboTax on your 2016 return that you would withdraw the entire excess by the due date of the return. If you did, then there was no 6% penalty, because that penalty is assessed only on the carryover of excess contributions to a new year, not when the excess is withdrawn. So did you tell TurboTax that you would withdraw the excess or not? You must have told your HSA administrator that you wanted to withdraw an excess contribution or else you would not have received a 1099-SA with a code of ‘2’.
And on your 2017 tax return, when TurboTax asks you if you “overfunded” your HSA in 2016, you should answer “no”, because withdrawing the excess in a timely manner (as the HSA administrator apparently recognizes) cuts off the ‘overfunding’. The question should actually be “Did you carryover any excess from 2016 to 2017?”
Well, your situation still isn’t 100% clear to me, but if you
(1) told the HSA administrator that the $135 was a contribution instead of a mistaken distribution,
(2) filed your 2016 return showing an excess of $135,
(3) did not tell TurboTax that you were withdrawing this amount by the due date and were assessed the 6% penalty, and
(4) told the HSA administrator that you wanted to withdraw the excess and they actually let you even after the original due date of the return,
Then just enter the 1099-SA with the code of ‘2’ to your 2017 tax return and be done with it. Oh, and like I said, answer “No” when you are asked on the 2017 tax return if you ‘overfunded’ your HSA in 2016.
You will have paid $8 more than you should have to my mind, but it’s a cheap lesson to learn that when you get in these situations, to ask a tax professional (not your HSA administrator) about what you should do now, not a year later.
Hello
I had excess contribution of $135 for tax year 2016 but was withdrawn as distribution after April 17 ,2017. In my case we visited a medical office associated with my employer - they mistakenly charged us (it is supposed to be free charge up to $1000 dollars per family) and refunded the $135 (which amounted to the excess contribution). The amount is listed as distribution code 2 in my 1099-SA.
I read the pub 969 from IRS but could not figure out if I should pay the 6% excise tax or if I should characterize this as a normal distribution that is not used for medical expenses (20% tax + ordinary income).
Currently TT has calculated 6% excise which is about $8 (which goes on line 59 of form 1040). Will I have to pay the 6% excise tax every year until this about is in the HSA account - in my case I just have to pay it in the 2017 taxes and I should be done right (since the amount was withdrawn on May 5 2017).
anything else I should do or am I done taking care of this excess contribution ? thanks much !