- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Report Inappropriate Content
2022 HSA Excess Contribution through Payroll Deduction that Has Been Withdrawn (plus earnings) from HSA Custodian
Hello Turbo Tax Community!
Here's my HSA nightmare situation:
I retired on 12/31/21. I received my last paycheck on 1/7/22. On this 2022 paycheck, it showed a payroll deduction of $169.23 to the my HSA. I contacted my previous employer immediately because I was no longer eligible to contribute to an HSA since I was not, nor would I be, enrolled in a HDHP in 2022.
My employer said not to worry...that those contributions were really for my last 2 weeks of 2021, not for 2022. I told them that I had already contributed the maximum amount for 2021, and again, that I wasn't eligible to contribute to the HSA in 2022. I asked them to reverse the contribution because I didn't want to deal with excess contributions on my 2022 tax return or have any IRS tax related issues, and I also explained that the IRS cares about the calendar year the contributions were made in, and that I am not eligible to contribute to an HSA in 2022. Again, they said not to worry.
Frustrated, and not satisfied by my employers response, I reached out to Fidelity, the HSA Custodian, directly and explained the situation. Fidelity said I was right and that my employer was wrong. I filled out the necessary paperwork, and I received a check withdrawing the excess contribution plus the earnings. Fidelity said I would receive a 2022 1099-SA showing this withdrawal as an HSA distribution with reason code "2" for excess contributions. Please note that the "earnings" were negative ($3.49) because of the market downturn during this time, so my withdrawal was $165.74, which was less than the contribution.
"Awesome!", I said.
I received the 1099-SA, as expected, and I thought I was all set.
Fast forward to now....
I received my employer W2, and the $169.23 was in box 12c with code "w". Got everything entered into the system, along with the 1099-SA, which I thought would "undo" the excess contribution when I did my taxes.
Unfortunately, It does not.
If I answer all of the questions truthfully - i.e. were you eligible for an HSA?, I answer "no", and will I withdraw the excess before the deadline?, "yes", How much? "$165.74"), it still reflects the 6% excise penalty of $10 on the $169.23.
So, I did some searching, and I found an article at https://www.benstrat.com/hsa-faq-excess-contributions/#:~:text=To%20do%20so%2C%20you%20need,a%20corr.... that states the following:
"If you made the excess contribution through pre-tax payroll deduction, you need to work with your employer to ensure that your Form W-2, which your employer delivers to you by January 31 to help you complete your personal income tax return, reflects your contributions accurately. To do so, you need to correct the mistake before the end of the calendar year and notify your employer. If you remove your excess contribution after December 31 but before the due date of your personal income tax return (April 15 most years), you must notify your employer, who then will issue a corrected Form W-2."
I have now reached out to my employer, but I'm getting the same song and dance from them as I did when I initially raised the concern right after receiving my last paycheck on 1/7/22. I provided them a copy of the 1099-SA, as well, as the letter I received from Fidelity accompanying the check of my returned contributions, so I could prove that this $169.23 was withdrawn.
I feel like I'm in the movie, "Groundhog Day", and I don't know how to proceed without a corrected W2 reflecting the removal of $169.23 from box 12c and adding that amount to wages in Box 1.
Any suggestions on how I should proceed?
Also, when Turbo Tax asked me to put in the amount of the withdrawn employer contributions, should I have entered $169.23 (the amount of the contribution) instead of $165.74 (the actual amount returned to me)? Maybe that's where I'm running into the issue.