BillM223
Expert Alumni

Get your taxes done using TurboTax

If you received a 1099-SA with a distribution code of '2', then early in the HSA interview, when you are asked if you used your HSA to pay for anything (as dmertz says above), and "yes", and the subsequent screens allow you to enter the 1099-SA.

 

Note that when the distribution code is '2', the distribution amount in box 1 (the excess you withdrew) is ignored. This is because TurboTax added it back to your Other Income (Schedule 1 (1040))the moment it saw that you had an excess contribution - this may have been in tax year 2024 or 2025. However, the earnings in box 2 should be added back to Other Income in Schedule 2 (1040) in any case. 

 

"the instructions says  "Here is what we have for you, but you can change the information"" - Yes, on the HSA Summary screen, it says this, but as you have found out, you can't change anything on this screen. Instead, you have to go back through the HSA Interview to change (most) entries.

 

In any case, TurboTax word usage is confusing, but this is based on how the IRS uses terminology, which is beyond confusing. For example, if you are covered by an HDHP and by Medicare, you are considered not to be covered by HDHP. This is because we are not using the HDHP at this point to pay for medical costs, but to calculate the annual HSA contribution limit. This fact is with Medicare, you can have both Medicare and an HDHP, but you can't contribute to an HSA in this case.

 

The 6% "penalty" (actually an excise tax) is not a penalty for having excess contributions, but for carrying over that excess to a subsequent year. 

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