BillM223
Expert Alumni

Get your taxes done using TurboTax

You need to go back through the HSA interview, and note that you did not have HDHP coverage from March through the end of the year (even if you did).

 

Please do not try to fix this yourself, do it through the HSA interview.

 

So, go to the HSA interview, and when it says that we are going to work on your HSA, go through the process. When if asks if you had HDHP coverage for at least one month during 2019, check "yes". Then on the three new lines that appear, click on "I had different coverage at different times of the year".

 

Then check off that you had Family coverage for January and February, and None for the rest of the year.

 

NOTE: the issue is what your coverage was on the first day of the month, so if you got married after March 1, then you check off that you had HDHP coverage for Jan, Feb, and Mar. 

 

Later in the interview, TurboTax will tell you that you had an excess contribution. If you indicate that you were covered by an HDHP in March, then the amount that you withdrew on 3/10/2020 will be wrong. In the future, please do not make withdrawals from your HSA for excess contributions unless TurboTax instructs you to. 

 

Did you tell the HSA custodian that the withdrawal was for "excess contributions"? If not, then the custodian has it incorrectly noted in their records.

 

You will probably be better off - if you told the custodian that the withdrawal was for excess contributions - declaring None for HDHP coverage in March.

 

Then, when TurboTax asks you if you will withdraw the excess by the due date of the return, answer "yes" (since you already did).

 

As I noted above, TurboTax will add the $5,250 automatically to Other Income on line 8 of Schedule 1 (1040). Please do NOT do this yourself.

 

If you don't do this the way I have described, your form 8889 will be wrong, and you will totally confuse an IRA auditor in case of an audit.

 

Also, unless you told the HSA custodian that it was for excess contributions, then the custodian will have it wrong in their records, and you will not only owe income tax on the withdrawal but will also owe a 20% penalty. If you did not tell the custodian that this withdrawal was for excess contributions, then please call them now and see if you can get it reclassified as a withdrawal for excess contributions. Otherwise on the books it will appear that you owe a 20% penalty in addition to income tax.

 

Please note, an HSA is not like a savings account where you can deposit and withdrawal money for any reason at will. The rules are not obvious, so let your employer and TurboTax be your guides.

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