Since the contribution is being reported in 2021 when you did not have HDHP coverage, TurboTax is correctly reporting this as an excess contribution. You can't contribute to an HSA if you are not covered by HDHP. That means you will pay a 6% penalty on the contribution for every year until either there's no money in your HSA or you withdraw the excess contribution. You can still withdraw it before April 18, 2022 to avoid the penalty. The $1,600 will be included as taxable income this year. To enter it 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. If you made any additional contributions, enter them here.
- Answer Did your employer tell you about any other contributions?
- Answer the questions on the next two screens, making sure you answer No, I did not have coverage to Were you covered by a HDHP in 2021?
- Answer Did you overfund your HSA in 2020?
- This will get you to the excess contribution screen. TurboTax should notify you that the $1,600is an over-contribution and you can still withdraw it by the tax deadline to avoid any penalties. If you answer OK, we'll withdraw the full $1,600 excess contribution by April 18, 2022, TurboTax will add the $1,600 to your taxable income. You will then have to contact your HSA and withdraw the amount. Make sure they know it is an excess contribution so they code the form correctly which you will include on next year's taxes.
- Continue through the remainder of the questions in the HSA section of your return.
- At that point, there should not be any errors regarding your HSA preventing you from electronically filing. You can also opt not to make the withdrawal, but you will keep paying 6% of $1,600 for every year that there is money in your HSA.
