Dependents are not eligible for any deductions related to contributions to an HSA. What this means for you is that before the filing deadline of April 18, 2022, you will have to notify your HSA and withdraw the entire amount that your employer contributed. The contribution amount is the Code W amount on Box 12 of your W-2. When you make the withdrawal, make sure to tell them it is for an excess contribution so they fill out the paperwork correctly for next year.
Your HSA plan will withdraw the amount of the contributions as well as any earnings and send you the money. The excess contribution will be added to your taxable income this year. Since you are doing it in 2022, you will get a Form 1099-SA for this transaction next year, but only the earnings will be taxable next year.
To do this in TurboTax:
- Enter your W-2 with the Code W in Box 12.
- This should have opened an area on your tax return for HSAs. If you do not see it, go to Federal > Wages & Income > Less Common Income > 1099-SA, HSA, MSA, and click Start/Revisit.
- Make sure you have HSA selected.
- If you made any withdrawals from your HSA, you should receive a 1099-SA and answer Yes to Did you use your HSA to pay for anything in 2021? Otherwise, select No.
- Assuming you did not inherit this HSA, select No.
- Under Let's enter your HSA contributions your employer amount should already be in there from the W-2. Leave the other field blank unless you also contributed money out-of-pocket that was not reported on your W-2.
- Answer the questions on the next two screens.
- Answer whether you had coverage the entire year. If you only had it for certain months, you may select the months you were covered.
- After asking about prior year over-funding in 2020, the system should alert you that you over-funded this year and can make the withdrawal by April 18, 2022 to avoid the penalty. Select that you will withdraw the full amount by the deadline.
