raom1024
Returning Member

Retirement tax questions

I have similar situation as the original post, just offset to year 2022 (actually 2021) as to when the excess HSA contribution was mistakenly made.  Between the original questions by @wag1, and very informative responses by @Opus 17  and @BillM223, you all have helped me understand the options.  I am hoping even if the last post in this thread was back in 2021, it is still open and I can ask about my situation.  Here it is:

 

1) I switched in 2021 from regular PPO insurance to HDHP which allows HSA contributions. I only started using TT for filing tax year 2022, before I was doing my taxes manually. When I manually filed for tax year 2021 in 2022, my old manual spreadsheet did not have HSA in the picture so I did not take an HSA deduction. When I filed for tax year 2022 in 2023, I amended my 2021 return to claim the HSA deduction. My mistake was I claimed as deduction my entire $2,900 contribution; it should just have been $1,000 HSA deduction. For some reason, IRS accepted the amended return and gave me additional refund.

2) After tax deadline of Apr 2023, I received an IRS notice flagging the overcontribution in 2022 by $1,900.  I assume that came from my amended 2021 return claiming $2,900 HSA deduction less the $1,000 correct deduction, so the excess is $1,900 in 2021, but now rolled over and being classified as excess in 2022.

3) The IRS notice just stated the 6% excise tax, which I paid in 2023. It did not further advise that I should take out that excess, so I did not. Clearly, a newbie mistake; had I dug more into the TT help and community board, I could have been warned.

4) Now filing tax year 2023, having used TT to file 2022, the $1,900 excess in 2022, which I did not withdraw before Apr 2023, was automatically retrieved from last year TT filing, again appears as excess for 2023, and is again being subjected to 6% excise tax.

 

From you all previous posts, my takeaways are:

1) I cannot withdraw excess from 2022 since it is from prior year and the deadline of Apr 2023 had passed.

2) That $1,900 has rolled over to my 2023 contributions but not aware of this rollover consequences, I maxed out my 2023 limits, so I am again in excess of $1,900. It seems @BillM223  from his previous post that if left unwithdrawn in the original year it was contributed (2019) and the following year (2020), both after respective tax deadlines, it effectively gets carried over twice in 2021 (?). So in my case, is the excess originally from 2021 now $1,900 x 2 = $3,800 for filing tax 2023? I seem to have read some posts that rolled over excess doubles, not sure if that is a technical glitch in TT software or that is how it is supposed to be.

3) I infer from previous post, that since excess in 2022 has rolled over to 2023 (but I had maxed that as well), I may be able to withdraw the excess amount from my 2023 contribution because it is still before Apr 2024. However, the interactive help in TT indicates however that cannot be done because it was from a prior year. Even if it can be done, the 20% penalty seems rather hefty, I'd rather leave it there and just pay again the 6% excise tax.
4) The best option is to reduce my 2024 contributions by the excess amount (either $1,900 or $3,800 if indeed carried over twice). I am hoping my employer/HSA custodian can allow me to do this even though I specified the max limits during our Open Enrollment in Nov 2023.

 

My lingering questions are:

1) If I am able to reduce my 2024 contributions, will that eliminate that excess when I file tax year 2024 next year?

2) What other form corrections do I need to do?

3) A complicating factor is that my HSA is invested in the available funds in the HSA custodian. If earnings from the excess contribution has to be taxed, is it even possible to track what earnings came from the excess and what from the within-limits contribution?

 

Sorry, my post is rather long-winded. I would appreciate any advice.