Excess Contribution for HSA 2021

[wllmk]

Hello,

I had an excess contribution to my HSA in 2021 for $201.95. I submitted the appropriate excess contribution form and received the $201.95 to my account on file. This was around February 15, 2022 before the deadline for the 2021 tax season. Because HSA funds are not taxed, I added $201.95 to my income and wages on my W-2 to account for this over contribution. I did not make any money from this excess money. My HSA provider gave the IRS/me a 1099SA form for 2022 for the excess contribution of $201.95, even though it was for excess contributions made in 2021 and they were properly removed before tax deadline. I did not file a form 5329 or a form 1099SA in 2021 (they didn't provide me with a 2021 1099SA) and when I go into turbotax it says that I am expected to pay federal tax of $201.95. What do I do in this situation. Talk with my HSA provider to change the 1099SA to 2021? Make an amendment to my 2021 tax return to include the 1099SA and the 5329? Thank you in advance.   

[MaryK4]

Because you already added the excess to your wages in 2021, you do not have to enter the 1099-SA for 2022.  You should keep a copy of it with notes of this just in case you get audited but as long as it was reported, you have no other adjustments.  (The trustee cannot change the 1099-SA because technically the funds were disbursed in 2022.)

[Opus 17]

You goofed.

When you indicate you have an excess contribution, Turbotax automatically adds it back to your taxable income.  If you fail to withdraw it, you are also assessed a 6% penalty, but the add-back to your income is automatic in Turbotax.  By adding the amount to your W-2 wages, you were taxed twice on the money. The extra income may be added to your form 1040 line 1 income, or it might be listed on schedule 1, line 8z, with a "HSA" notation next to it.  Double check your printed or PDF of your 2021 tax return.  You may want to amend your 2021 return to remove the manually added amount since you were probably double-taxed.

The 1099-SA you received in 2022 should have the distribution amount in box 1 plus a code 2 in box 3 for return of excess contribution.  Turbotax should not tax you on a code 2.  However, if you also had withdrawals for medical expenses, you might have a code 1, and if you indicate you have (let's say) $1000 of medical expenses but your box 1 amount is $1200 because of the withdrawal of excess, that may create a situation in TurboTax and I will need to research how to report it or ask for help.

Does your 2022 form 1099-SA only have the withdrawal of the excess, and is it code 1 or code 2?

When you withdrew the excess, did you tell the HSA bank that you needed to make a withdrawal of excess contributions, or did you make a regular withdrawal?  A withdrawal of excess contributions is a special procedure that may require a special form or special selection when making an electronic withdrawal. 

[wllmk]

Thank you for the response. If I over contributed again this year, should I fill out a form 1099SA and 5329 in advance with what I expect my over contribution amount to be and add the amount to my wages? Or do I have to wait for an official 1099SA from my trustee. This year over contribution by $.05.....

[wllmk]

Hello Opus17,

I did submit their Excess Contribution form and when I contacted them they have my request on file. I have two 1099SAs for this year. One for excess contribution of $201.95 (code 2). The other is $238~ medical expense (code 1).

[wllmk]

Both 1099SAs were only provided to me last month and both are for the year 2022. The excess contribution was done in Feb 2022 and the medical expense in December 2022. I do not have a 1099SA for 2021 as that was my first year with the HSA and I did not use it for medical expenses.

[Opus 17]

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@wllmk wrote:

Both 1099SAs were only provided to me last month and both are for the year 2022. The excess contribution was done in Feb 2022 and the medical expense in December 2022. I do not have a 1099SA for 2021 as that was my first year with the HSA and I did not use it for medical expenses.

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You should not have a 1099-SA for 2021, that's fine.

Try and review your 2021 return, I'm pretty sure you double-counted the HSA excess contribution.

If you have two separate 1099-SAs for 2022, one for normal medical spending (that should be code 1) and one for the return of excess with code 2, that's also proper.  No changes need to be requested.   It would be best if the program was smart enough to ignore a 1099-SA with code 2.  I don't have time to test that right now, I will ask for assistance.  If the program is telling you that the return of excess is taxable money when you enter the 1099-SA with code 2, an acceptable workaround is to leave that 1099 off your return completely, since the money was taxed last year.

@dmertz 

@Hal_Al 

@rjs 

Do you know anything about the 1099-SA for return of excess with code 2?  Should Turbotax ignore it or should the taxpayer leave it off their return?

[dmertz]

On Form 1099-SA with code 2 TurboTax properly only treats any amount in box 2 as taxable, not the amount in box 1.  TurboTax probably shows on a summary screen that there was income equal to the amount in box 1, but that would be nontaxable income in this case.

[Opus 17]

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@dmertz wrote:

On Form 1099-SA with code 2 TurboTax properly only treats any amount in box 2 as taxable, not the amount in box 1.  TurboTax probably shows on a summary screen that there was income equal to the amount in box 1, but that would be nontaxable income in this case.

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I can confirm that if I enter a 1099-SA with code 2, the returned amount is not added to my taxable income and does not change my tax or refund.  On the HSA summary, both my regular distribution and my return of excess are included in "total distributions" but my taxable distributions is zero.

@wllmk 

If your return of excess is listed in the "taxable distribution" line, make sure the 1099-SA has code 2, and make sure you selected code 2 when you entered the 1099-SA in the program.