Deductions & credits

Once again, thank you for your time.  I believe that I still have a problem with Turbo Tax.

My contributions were made through my employer (Raytheon), but they had nothing to do with the return of the excess.  You will recall that the funds returned were excess not because I had contributed what would normally be excess, but rather because in November, 2022, when I started social security payments, I was put on medicare part A as my secondary insurance and I had to have all of my contributions since March returned.  When I contacted my employer in late 2022, I told them I now had some social security coverage and to discontinue their contributions to my HSA.  I also asked about how to get my contributions made after March of 2022 returned to me in a form that I would be taxed on.  They told me that they had nothing to do with that but rather that I needed to contact the HSA company, Fidelity, and deal with them. So my employer had nothing to do with the "excess" returned.

When I spoke with a Fidelity agent I was told that the returned excess would come directly from them and the my employer would have nothing to do with it.  Since the funds would be returned to me in 2023, it would be listed on the 2023, 1099-SA they would send me and that would go into my 2023 tax return as income (since 2023 would be the year I received it), and I would pay tax on it in 2023.

The 2022 W2 from my employer, in box 12 code W shows the full amount they contributed and the full amount I contributed, as Fidelity had explained would happen, with nothing to indicate that most of it would be returned the next year as excess.  There was no corrected 2022 W2 from my employer.  

When I received the 2023 W2 from my employer there is no box 12 W entry as neither I nor my employer contributed in 2023.  So this all went as both my employer and Fidelity had explained it to me.  The excess returned never appeared on a W2 in any way to indicate it had been returned, but rather I am supposed to pay tax  on the excess that was returned to me in 2023.  Turbo Tax has had no way to add this returned excess in 2022 or 2023 and going through my 2022 Turbo Tax and my 2023 Turbo Tax, I am quiet certain that these returned funds have never been taxed.  I have generated a crude manual 2022 and 2023 tax return and the numbers come out very close to the Turbo tax numbers if I omit the returned excess.

If I was doing my taxes manually I could simply check the correct box in the form 8889 line 14b and these funds would be taxed, but you indicated that as soon as Turbo Tax sees the 1099-SA distribution code of 2 it concludes the returned excess is not taxable, which might be true in most cases but not in my case and looking through various IRS documents, a distribution code of 2 does not indicate if the returned excess should or should not be considered as taxable income.

I have a tax extension, and I am now pretty certain that I was not taxed on the returned excess in 2022 and clearly Turbo Tax is not taxing me on it this year.  If I omit the 1099-SA from this years Turbo Tax it show I owe exactly the same amount of tax.

I just have to believe that this is a bug in Turbo Tax, and I can't use it for this year's return.  Shortly I will look into having a professional do this year's taxes.

Again, thank you for all of your time and I wish you could point out an error in my thinking and analysis, but it has become pretty clear to me that in it's current form, Turbo Tax can't handle my case.

Thanks  James Bender