Retirement tax questions


@raom1024 wrote:

Thank you @dmertz for the clarifying questions.

 

I have actually been HSA eligible since 2020, continuously till the present. My HDHP plan was for self only.

 

For 2021, I was under 55, so my contribution limits was $3,600 but my employer contributes $700 so my employee contribution was $2,900.

I am beginning to have a suspicion.  The way the tax law works, all contributions made by payroll deduction are treated as employer contributions.  Essentially, you agree to a salary reduction, and your employer makes a contribution equal to the reduced salary (plus any match).   These are recorded on your W-2 in box 12 with a code W.  (There can be other items in box 12 with different codes, we are focusing only on code W.)

 

Later in the program, when asked about additional contributions, you only enter direct contributions you made to the HSA bank out of pocket, and not through payroll.  Adding your workplace contributions as if they were additional out of pocket contributions can result in you taking an illegal tax deduction and also a false report of excess contributions.  

 

Your first mistake may have been amending to claim a deduction that it sounds like you shouldn't have taken.  Your second mistake was paying a penalty that you probably didn't really owe without doing a deeper dive into what the problem was.  It is now possible that, depending on what you did and what you claimed, you have claimed excess (unallowed) deductions and owe back taxes with interest, or you paid a penalty you don't owe, or both, and you may need to file several years of amended returns (including second-amended returns, which is tricky).

 

Depending on your comfort level, you may be able to do this yourself or you may need professional assistance.

 

To start with, you need to look at your original 2021 return, your as-amended 2021 return, your 2022 return, and the IRS letter to see what was really being claimed and what you paid.  You should also get your full tax return transcripts from the IRS to see what they have on file for you and what adjustments they have made for you.

https://www.irs.gov/individuals/get-transcript