HSA contribution and other income question

[chungcw3]

I noticed that I'm getting a $258 penalty for making an excess contribution to my HSA. I enrolled in a family HDHP last November when I changed jobs and become eligible for health insurance. I contributed $5800 to my HSA last year which is less than $7300 limit. Am I getting this penalty because I'm filing married filing separately? 

I also added a second W-2 for the last 2 months of pay I got from my new job and saw my refund drop a lot and seeing $12,280 as other income on line 8 on the 1040. I have no idea where this other income is coming from and it's really raising my AGI. It isn't in any of the wage and income section and only see it when I'm finishing entering all my wages and clicking the box saying I had financial interest in digital assets.  

Thank you in advance for anyone who can help me with these 2 questions. 

[BillM223]

"seeing $12,280 as other income on line 8 on the 1040."

Line 8 on the 1040 comes from line 10 of Schedule 1 (1040). Please go to Schedule 1 and tell us what numbers are in which lines (i.e., line 1-7, lines 8.a though 8.z). This will tell us where the $12,280 is coming from.

"Am I getting this penalty because I'm filing married filing separately? "

That's not clear. How did you enter your return? Did you enter information about you and your spouse as if you were going to file Joint, then switched to Separate? That causes a lot of leftover data in your return which can confuse everything. Or did you enter only the most minimal amount of data about your spouse?

[chungcw3]

Line 8 on the 1040 comes from line 10 of Schedule 1 (1040). Please go to Schedule 1 and tell us what numbers are in which lines (i.e., line 1-7, lines 8.a though 8.z). This will tell us where the $12,280 is coming from.

1 - 0

8f - 10,100

8z - 180

I did make 180 staking crypto so line 8z makes sense to me. 

That's not clear. How did you enter your return? Did you enter information about you and your spouse as if you were going to file Joint, then switched to Separate? That causes a lot of leftover data in your return which can confuse everything. Or did you enter only the most minimal amount of data about your spouse?

I started my return saying that it would be married filing separate and that my wife wouldn't be filing a return this year. We did this because of her IBR. I can't remember if I tried to see what filing jointly would do after seeing the big drop in my refund or not but when I got to personal it shows married filing separately. 

[BillM223]

The 10,100 on 8f comes from line 16 on your 8889. This could mean that you took a distribution for 10,100 from your HSA but not for qualified medical expenses.

So did you enter a 1099-SA? what was the amount and the code? 

I don't believe that filing separate will in and of itself cause an excess contribution, so I have to wonder what TurboTax thinks about your spouse.

Are you using the Online product or the D/download product? I am asking because I would like to know if you can see your form 8889 (in Forms mode on the CD/download product). 

[chungcw3]

So did you enter a 1099-SA? what was the amount and the code? 

I don't remember a 1099-SA. Where would I have entered if I did?  I have a 5498-SA for the 5800.05 I contributed last year. 

I didn't take any HSA  last year. i only had my new HSA open for a couple weeks last year and didn't touch anything in a old HSA balance I had. 

Are you using the Online product or the D/download product? I am asking because I would like to know if you can see your form 8889 (in Forms mode on the CD/download product). 

I'm using the download product. I did find my 8889

line 1 - 7300

line 4 - 5800

line 5 - 1500 This makes sense to me that I was 1500 below the annual limit

line 9 - 5800

line 11 - 5800

14a - 5800

14c - 5800

16 - 5800 Is it saying I made a $5800 taxable distribution? 

17b - 1160

[chungcw3]

Line 16 doesn't seem right to me, but I don't know how to properly fill out a 8889. 

If I had to change something where where would I do it?

[chungcw3]

Line 16 doesn't seem right to me. I didn't take any distributions, but I don't know how to properly fill out a 8889. 

Did I enter something wrong?

If I did, how would I fix it?

[BillM223]

It's line 4 that puzzles me. This line says that your employer made a contribution to your Archer MSA (a predecessor to the HSA). Do you have an 8853 on your return?

Also, on your W-2 in box 12, do you have a code R?

[chungcw3]

It's line 4 that puzzles me. This line says that your employer made a contribution to your Archer MSA (a predecessor to the HSA). Do you have an 8853 on your return?

There is a 8853 pt1 form but everything is blank except for the no box is checked in the tax payer column in the part 1 smart worksheet. 

Also, on your W-2 in box 12, do you have a code R?

I have a code DD in box 12a and a code W in box 12b.

[RalphH1]

I’m hesitant to interrupt here, as it appears that you and @BillM223 are on your way to solving this. But just in case he’s off until Monday, I thought I’d offer some thoughts.

At the beginning of the health-related accounts section of TurboTax, there’s a page where you check the plans you have. Is “Medical Savings Account (MSA)” checked there? If so, we need to revisit those screens and remove the MSA info. As Bill said, that’s a different kind of account, which we’re thinking is irrelevant here (but let us know if this isn’t the case!).

By the way, removing info that's already been entered in the program can sometimes be tricky. And depending on what you see and how it’s going, you may want to just go delete all your medical account data (by selecting “Tax Tools,” then “Tools,” then “Delete a Form” in the “Tools Center,” and looking for the lines that start with “Form 8889...”). After that you’ll of course need to re-enter the HSA info, making sure not to check or say “yes” to anything about MSAs.

Also, one of the 1099-SA screens for the distribution says, “Did you spend your HSA money on medical expenses only?” We want that to be a “yes” (if it’s true, of course!). So you’ll want to be on the lookout for that if you’re re-entering everything (and just go there and change it otherwise).

Some things about this scenario are puzzling indeed. But it appears you have $5,800 of extra income because TurboTax thinks your distribution was spent on non-medical expenses, plus another $4,300 of extra income, which is the excess of the extra MSA contribution plus your other HSA contribution over the $7,300 limit. @chungcw3, hopefully we get lucky and the steps above fix it — but if not, just let us know here and we’ll continue this intriguing project!

[chungcw3]

Only HSA was clicked at the start of health related accounts.  I was only covered by the family HDHP for December 2022 since I switched jobs. Does that affect  my contribution limit? I thought I could contribute $7300 for the year as long as I was covered by a HDHP any portion of the year. Is that not correct? 

Looks like Turbotax is saying that I could only contribute $1500 when I tell it I only had coverage for December. Is this why Turbotax thinks I used money for non medical expenses?

[BillM223]

So your Part I Smart Worksheet has nothing checked in the Taxpayer column, not even NO for Were any employer contributions made to your MSA(s)?

"I thought I could contribute $7300 for the year as long as I was covered by a HDHP any portion of the year. " Actually, this would be true if you were covered on December 1, 2022. The "last-month rule" allows you to use the annual HSA contribution limit, no matter how few months you were covered. But you had to be covered on December 1st to do this.

OK, the fact that you are showing some evidence of having an MSA in TurboTax when you clearly don't, leads me to the nuclear option. We (well, you) are going to delete all HSA and MSA data in your return, and then you will start the HSA interview over again.

To delete all HSA and MSA data:

1. make a copy of your W-2(s) (if you don't have the paper copies) (yours and spouse's)

2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen)

*** Desktop***

3. go to View (at the top), choose Forms, and select the desired form. Note the Delete Form button at the bottom of the screen. 

*** Online ***

3. go to Tax Tools (on the left), and navigate to Tools->Delete a form

4. delete form(s) 1099-SA (if one), 8889-T and 8889-S (if one), and 8853-T (and -S, if one)

5. go back and re-add your W-2(s), preferably adding them manually

6. go back and redo the entire HSA interview. 

The 8853 may be created as part of the HSA processing as an empty worksheet - if so, that's OK. But line 4 having anything other than zero is a problem.

Let me know how it goes.

[chungcw3]

OK, the fact that you are showing some evidence of having an MSA in TurboTax when you clearly don't, leads me to the nuclear option.

The nuclear option worked! My other income only has the money I made on staking crypto, there are no MSA forms and nothing showing I took any HSA distributions.

Thank you so much helping me fix my taxes!