If you had HSA contributions that were not reported on your W-2, you will have to report those as well. Then, to avoid over-contribution penalties and an ongoing headache, it is probably in your best interest to withdraw the excess contributions before April 15, 2022. 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. If you made any additional contributions, enter them here. However, if your employer made additional contributions not reported on your W-2, enter them on the next screen, Did your employer tell you about any other contributions?
- Answer the questions on the next two screens, making sure you answer the question related to your HDHP correctly.
- After asking about prior year over-funding, the system should alert you that you over-funded by $200 this year and can make the withdrawal by April 18, 2022 in order to avoid the penalty. If you opt to do this, the $200 will populate in Schedule 1 Line 8e as a taxable HSA distribution. You will not pay any penalty.
When you contact your HSA, make sure you tell them the withdrawal is for an excess contribution and to remove any earnings associated with the excess contribution as well. On next year's return, you will receive a 1099-SA for this withdrawal and pay tax on the earnings. It doesn't matter which of the three HSA providers you take the withdrawal from.
