Hi,
I overfunded my 2020 HSA contribution but withdrew the excess plus earnings in February 2021. While working on my 2020 taxes, I realized that I had overfunded my 2019 HSA contributions by $66 and did not withdraw it, and so I paid the 6% penalty on my 2019 tax return. The $66 carried forward to my 2020 return in TurboTax.
My HSA account was transferred from a prior brokerage firm to the current brokerage firm on 3/12/20, and so the current brokerage firm is unable to compute the earnings on the excess $66 contribution made on 11/1/19. I asked the rep whether the $66 excess from 2019 can be carried forward to 2020 and whether I can complete a second return of excess contribution for 2020 for $66 plus earnings. She said no, and that I would need to calculate the earnings myself from 11/1/19 forward, and then withdraw that amount as a normal distribution because it is too late to request a return of excess for 2019.
This does not sound right to me based on my understanding of being able to use prior year excess contributions towards the current year's contributions. The stickler though is that I overfunded for 2020 as well, and so my question is whether I can do a second return of excess plus earnings for 2020 prior to the tax filing deadline so that I can use the $66 excess contribution from 2019 as a 2020 contribution.
My other question is whether the earnings on the excess should be reported on my 2020 or my 2021 tax return, given that the distribution was made in 2021 (prior to the tax filing deadline). The instructions in Form 8889 state that "you can withdraw some or all of your excess contributions for 2020 and they will be treated as if they had not been contributed if you also withdraw any income earned on the withdrawn contributions and include the earnings in "Other income" on your tax return for the year you withdraw the contributions and earnings." In contrast, the instructions for Form 1099-SA Box 2 (Earnings on excess cont.) state that "you must include the earnings in your income in the year you received the distribution even if you used it to pay qualified medical expenses."
Lastly, on Form 8889 Part II for HSA Distributions, line 14a asks for total distributions, which I interpret to include excess contributions plus earnings. Then line 14b asks for distributions including excess contributions plus earnings. Since 14a and 14b end up being the same number (I had no other distributions other than to remove the excess plus earnings), the taxable HSA distributions in line 16 ends up being 0. This doesn't seem right, as I believe I need to include the earnings as taxable income. I don't know whether TT will put everything in the forms correctly presuming I input everything correctly; I just wanted to review the forms first so that I understand mechanically what should be happening.
Thanks in advance.
