BillM223
Expert Alumni

Get your taxes done using TurboTax

I am sorry to say this, but, yes, you did "mess up", but in a way that is all too common.

 

When you called your HSA custodian to ask to return the $2,070, I imagine that you did not say the magic words "Withdrawal of excess contributions". This would have let the HSA custodian know that they needed to put a 2 in box 3 instead of 1, that they needed to calculate the earnings on the excess while it was in your HSA, and to put the earnings in box 2 on your 1099-SA.

 

Without you telling them this, they had no way of knowing, so they did what they did with their limited information.

 

TurboTax is set up so that it calculates the amount of excess contributions - you are not allowed to set the amount of the excess. That's why you can't change it.

 

So you will have to do this. Write up on a piece of paper the following:

1. You made contributions of $2,075. This amount was shown with code W on your W-2.

2. You subsequently realized that you were not eligible to contribute to an HSA.

3. You asked the HSA custodian to withdraw $2,070, mistakenly not realizing that the entire $2,075 needed to be withdrawn.

4. Furthermore, you failed to tell the HSA custodian that this was a withdrawal of excess contributions, which caused the HSA custodian to put the wrong distribution code in box 3 of the 1099-SA.

5. You calculated the earnings of the excess to be $0.05. You added this to Other Income.

6. You shortchanged the original contribution of $2,075 by removing only $2,070. The $5 difference is an excess contribution that you did not withdraw, so it will be carried over to next year. You will be assessed an excise tax of 6% on the carryover. NOTE: this is 6% of the lesser of the carry over or the value of your HSA at year-end. Since your HSA is now zero, your penalty will be zero.

7. If, at some future point, you resume HDHP coverage without the conflicting FSA coverage, you will use that $5 carryover as a "personal contribution" and the penalty will cease.

8. You understand that the paperwork of the HSA custodian differs from yours, but you have, to the best of your ability, made the situation right by withdrawing nearly all the excess contributions, paying tax on the original contributions and the earnings, and carrying over the excess that you did not withdraw (the $5). 

9. You will keep this piece of paper in your tax files in case any one ever asks about it.

 

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