"In 2016 we had excess contributions, so in 2017 the 2016 excess was entered in the 2017 form by TurboTax. In 2018 the 2016 excess was entered in the 2018 form by TurboTax. And in 2019 the 2016 excess was entered in the 2019 form by TurboTax. "
I need to understand what you're saying.
I've asked you twice now, "How did you answer the question, 'Did you overfund your HSA last year?'" Did you say "Yes" every time and enter the amount?
Oh, wait, maybe I see what's happening. I think that when you said that you withdrew the 2016 and 2017 excess in 2018, that I misunderstood you. That, in fact TurboTax did NOT think that you withdrew the 2016 carryover, because that was too late.
In 2018, when you withdrew the excess from 2016 and 2017, perhaps the amount withdraw was only the 2017 amount. That is, TurboTax never let you withdraw the 2016 amount (because it was too late when you tried). So when you said that you withdrew 2016 ans 2017 at the same time, maybe you didn't withdraw 2016 in the eyes of TurboTax.
So TurboTax put the 2016 amount on the 5329, and just kept rolling it over because you never cut it off.
How do you cut it off? In the first year after the excess, you can reduce your other HSA contributions so that the carryover can be discharged against the subsequent year.
But after that all you can do is make distribution from the HSA and tell TurboTax that this distribution was NOT for qualified medical expenses. You will be assessed income tax and a 20% penalty, but the 2016 carryover would be done with.
OK? What was the excess for 2016? Call your HSA custodian and ask for a distribution for that amount. When your 1099-SA comes early next year, be sure to tell TurboTax that part of the distribution was NOT for qualified medical expenses.
Does this make sense?
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