BillM223
Expert Alumni

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It sounds like your two 1099-SAs were created with Distribution code of "1" in box 3, i.e., a normal distribution.

 

If so, then either you didn't tell the HSA custodian that this was a "withdrawal of excess contributions", or the HSA custodian made a mistake.

 

Whichever it was, there is no good fix now, because HSA custodians normally refuse to correct even their own errors from the previous year.

 

The "solution" is to enter the 1099-SAs for the withdrawal of excess contributions with distribution code of "2" in box 3. When you do this, the distribution amount in box 1 is ignored (good) and only the earnings in box 2 are added to income (as they should be).

 

NOTE: entering a form with different information than the copy that was sent to the IRS by the HSA custodian may trigger a letter to you from the IRS asking why. You will have to be prepared to explain that the HSA custodian made a mistake and that you had to change to data on the form to correct it. If you have any evidence of this mistake, like a copy of the withdrawal request or an email from the HSA custodian, that would be a very good thing to put in your tax archive in case anyone asks.

 

NOTE: 1099-SAs for withdrawal of excess contributions are normally entered in the tax return of the year following the original contributions. This is because most people don't realize that they have an excess until they do their tax return after the end of the year. Besides, the earnings are generated both in the original tax year and the year following, so it would not make sense to report the earnings before you actually earned them.

 

So it is correct that the 1099-SAs reporting the withdrawals of excess contributions in 2023 would go into your 2024 return.

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