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Thank you Mike

perhaps you did 2020 wrong. because you did not actually withdraw the 2020 excess you should have paid a 6% penalty tax  on the $3550  (or the FMV of the accounts if lower) that would have shown on form 5329

if you did 2020 incorrectly, then 2021 Turbotax does not know that there is an excess from 2020 that needs to be accounted for. they're supposed to show up on form 5329 line 42 and get there from the Turbotax carryover worksheet.

Jerry: There is no 5392 in 2020, since the 2020 excess contribution was withdrawn and carryover to 2021, so 2020 does not have any excess contribution. My understanding is that the 3550 from 2020 excess contribution should be counted into 2021 contribution (Which is true if looking at 2021 5498).

Turbotax has helped me to adjust HSA contribution for 2020 to 7100, so I have supposed to pay the income tax for the 3550. I don't think there is penalty tax, since I have withdrawn (in the form of carryover, this equals to withdrawal as cash, then contribute into HSA in next year) before 4/15.

the 5498s are not entered into Turbotax 

you say you withdrew only $3,000 and $2,610 from your HSA's but with code 2 for excess contributions the 1099-SA's are showing $5,000 and $4160 (obviously they're including the 2020 excess but they were not in fact withdrawn) 

Jerry: The 1099-SA on taxpayer one shows $5000 (2000 from carryover + 3000 withdraw) with code 2. I don't know why the 2000 carryover is counted as withdrawal.

I think they are wrong. they should only report the actual distributions.

but there may also be an issue with Turbotax since entering them has no effect on the excess even if the box employer contribution withdrawal is checked.

hopefully @BillM223 has a solution.

I would say the 2020 excess of $3550 + the 2021 excess of $ 3340 less the amount already withdrawn of $5610 should leave an excess of $1280 which if not withdrawn by the due date of the 2021 return should be subject to the 6% penalty.  however the penalty is based on the lower of the excess or the FMV of the account at 12/31/2021 (needs to be entered for the 5329)

Jerry: I felt you are right, there is indeed 1280 excess contribution that I should withdraw before 4/15/2022, so as long as I withdraw them, and Turbotax should help me to adjust my HSA contribution as 7200, so I am essentially paying the income tax for the 6890 (3550+3340).

Now my understanding is that:

• 1099-SA code 2 does mean withdrawal of excess contribution
• The 2020 carryover should be counted into 2021 contribution
• As long as the 1099-SA + additional withdrawal before 4/18 equals to the total excess contribution (6890), and tell TT so, TT will adjust my total HSA contribution to 7200, so essentially I am paying the income tax.

Now the problem is that Turbotax does not calculate it (Or maybe it just ignores all carryover and withdrawal, and ask taxpayer to calculate by themselves), see below screenshot:

• Second to the last line is 7200 limit
• Last line is the 3430 excess contribution
• No where shows my carryover of 3550
• No where shows how the second line (5000+4160) impacts the numbers
• Maybe TT never cares about how much you have withdrawn, but only:
  • How much you have excess contribution FROM EMPLOYER
  • Whether you have or will withdraw such excess, if so, then TT will simply adjust total HSA contribution as 7200. TT does not help you calculate how much net excess contribution you need to withdraw (which is 3430+3550-5000=1280), if your responsibility to calculate and make it correct. Though I don't know if IRS will get it right.

Now I feel much clear now, hopefully Bill can help verify my last sentence. Thank you both!