@l141
under both methods, you must pay income tax on the ineligible contribution, because it is not allowed to be taxed deductible or excluded from income. 2022 doesn’t know what you might, or might not do in 2023.
If you leave the money in the HSA and apply it toward the 2023 contribution limit, the instructions say that you take the tax deduction in 2023. I can’t see where that calculation occurs in the actual form, but there is probably an internal hidden TurboTax worksheet that takes care of it for you. You should be asked as part of your 2023 tax return whether you had any excess to carryover from 2022, or that information will be automatically carried over if you import your 2022 file to start your 2023 return.
in other words, if you withdraw the money, you pay income tax, because it was not an allowable deduction. Then you make new contribution of the full amount for 2023 and you get a tax deduction. Or, leave the money in the account and you pay income tax, because it was not an allowable deduction, plus the penalty. Then if you apply that excess toward the 2023 limit, it now counts as a 2023 contribution and you get the tax deduction then. So either way, your tax deduction is the same, $1825 in 2022 and $3850 in 2023.
