- Mark as New
- Bookmark
- Subscribe
- Subscribe to RSS Feed
- Permalink
- Report Inappropriate Content
Deductions & credits
Ugh. I'm not sure if we are misunderstanding what each other is saying, but I entered the info into TurboTax without issue. So it seemed like I did everything correctly regarding reporting the removal of excess, but your reply is making me unsure. I will explain one more time with specific details in the hopes of making sure we both understand each other correctly:
1) On 4/15/20, I directly contributed the maximum $3,550 to my HSA account (not through W-2 contributions as I am retired).
2) On 11/26/20 I switched to a non-HDHP health plan. Therefore, because I was ineligible for December 2020, my 2020 contributions were overfunded by $296 (1/12th of $3,550).
3) On 2/1/21 I submitted a return of excess 2020 contribution request for $296 to the HSA brokerage firm, using 4/15/20 as the contribution date for the calculation of earnings on the excess contribution. On 2/17/21 a distribution of $384 ($296 excess + $88 earnings) was transferred to my checking account. My 2020 HSA contributions now totaled $3,254 ($3,550 - $296).
4) When preparing my 2020 taxes I realized I had an excess 2019 HSA contribution of $66 that had not been subsequently removed. I decided to carry it forward to my 2020 contributions, which meant that I would then need to reduce my actual 2020 contributions by an additional $66.
5) On 3/22/21 submitted a return of excess 2020 contribution request for $66 to the HSA brokerage firm, using 4/15/20 as the contribution date for the calculation of earnings on the excess contribution. On 3/25/21 a distribution of $85 ($66 excess + $19 earnings) was transferred to my checking account. My 2020 contributions (excluding the 2019 carryforward) now totaled $3,188 ($3,550 - $296 - $66).
6) TurboTax calculated that $3,254 was the maximum 2020 HSA contribution that could be made ($3,550 original - $296 for December ineligibility). I entered $3,188 as the total HSA contributions for 2020 ($3,550 original - $296 excess removed - $66 excess removed). TurboTax carried forward the $66 excess from 2019, and so I was able to take a $3,254 deduction for contributions on Form 8889 and 1040 Schedule 1. And Form 5329 showed 0 excess contributions for 2020.
7) Thus, I thought I had properly removed my excess contributions and was only left wondering whether to report the earnings on the excess contributions removed in my 2020 or 2021 tax return, and what figures to enter into TurboTax.
Whether or not I did it correctly, it has already been processed by the HSA brokerage firm as a return of excess 2020 contribution, and so there is no opportunity to withdraw the $66 excess contribution from 2019 + earnings as a normal distribution as you suggested. I should receive either 2 separate or 1 combined 1099-SA in early 2022. I believe the form(s) will show "2 - Excess contributions" as the distribution code in Box 3. So I think I will leave my 2020 return as is because it seems correct to me, and I will deal with reporting the earnings on the excess when I prepare my 2021 tax return.
Could you please confirm that the $296 and $66 distribution amounts that represent the return of excess contributions would NOT be taxable in my 2021 return? I did not take any deduction for the $296 contribution in my 2020 return, and I already included the $66 as taxable income in my 2019 return. I understand that I will need to pay income tax plus penalty on the earnings distributed.
Thank you.