Deductions & credits

The IRS permits you to take distributions from your HSA for previous expenses made after the creation of the HSA. As a variation on this, we suggest if you have already taken the distribution, that you apply it to soon-expected medical expenses.

There is no definition for "several months" because this procedure is not described at all in the IRS instructions and notices. The procedure to take a distribution for previous expenses is barely described. There are any situations in the HSA world where what-if results in not defined answer yet. So we suggest this as an alternative.

If you document it well what expenses you spent the $1,000 on (not $1,200), if it ever came to an audit you could own up to the withdrawal of too much excess contributions but that you applied the excess-excess $1,000 to qualified medical expenses in the short period thereafter. No, there is no definition to "short period"; this is just an argument that you could make at audit time that you adhered to the spirit of the law by making sure that everything distributed from the HSA conformed either to the excess contribution procedure or the qualified medical expense procedure.

Note that in 2025, if you create this list of actual medical expenses to be applied to the $1,000, then you cannot list those same expenses on Schedule A. And no, you will not report the $1,000 at all in TurboTax in 2025.

The alternative (as seen in Option 3) is to carry over the $1,000 to 2025. If you decide to carry over that $1,000 to 2025, you will need to do two things:

1. Contact your HSA custodian and ask them to change $1,000 on their books as an excess contribution to 2025.

2. In the HSA interview on your 2025 (not 2024) return, when TurboTax asks "did you overfund your HSA in 2024?", answer Yes, and then enter $1,000. This will be treated as a carryover from 2024 to 2025, and TurboTax will try to apply it as a personal contribution for 2025. Please do NOT try to fix this yourself, but let the step-by-step interview handle placing numbers on the 8889.

As for 2024, TurboTax told you the excess was $4,000 and then you agreed to withdraw all of it (you in fact withdrew more). What we are dong here is trying to correct your error in withdrawing too much from your HSA. 

Again, just as in the previous discussion, we are giving you a basis in which you can argue that you adhered to the spirit of the law. In your case, you made a mistake but the HSA custodian would not let you fix it (I don't see any reason what they couldn't fix it if they wanted to, but I see that many HSA custodians are reluctant to fix anything, even their own mistakes).

So in the latter case above, you are applying the excess to the next year, limiting the amount that you can contribute next year, again trying to work within the spirit of the law.