I need help in understanding how HSA excess contributions are handled. Here is my situation. In 2022, I and my wife made an excess contribution to HSA. We removed excess contribution (from my account) before 2023 Apr tax deadline but realized later that we still have $300 in excess. I had the $300 excess contribution further removed from my HSA account around Sep 2023. Now fast forward 2023 tax filing, we made the exact $7750 contributions limits in total for 2023. Now while filing the 2023 return, here are the steps I followed,
a. Page "Let's enter Sanjay's HSA contributions"
Excess HSA contributions carryover from 2022 still in HSA account - 0
Any contributions you personally made - My actual 2023 contributions
b. Who made the excess HSA contribution? Sanjay (Not sure why TT asks me this question when there is no excess contribution in 2023)
c. Enter Last Year's (2022) Excess Contribution - $300
d. Next page is "You may want to withdraw money from your HSAs" with 3 options given.
(i) OK, we will make/have made the full $300 excess contribution withdrawal by April 15, 2024.
(ii) We will make/have made some of the excess contribution withdrawal by April 15, 2024.
(iii) No, we're not going to make this withdrawal.
1. Why is TT considering $300 excess contribution for 2023 even though we made exact contributions (total) as per limits?
2. Was the $300 excess 2022 contribution that got rolled over in 2023, considered contributions for 2023 too?
3. Should I withdraw $300 before Apr 2024 tax deadline and indicate the same in TT (for tax year 2023). But this will in reality reduce our 2023 HSA contributions by $300.
4. I assume any HSA distributions (for excess withdrawal) will be indicated in 1099-SA form and will need to be filed with TT and taxed. But correct me if I am wrong.
Appreciate any help with this.
