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Thank you so much, Bill. This was not at all apparent, as you said.   So it seems I now have two problems:   I still haven’t eliminated the excess contribution. I had the HSA custodian produce an inaccurate 1099-SA. Hopefully I can contact the custodian and ask them to reclassify the distribution as a normal distribution?

I believe this info is outdated.  I followed these instructions and the IRS is using a new chatbot that seems to prevent me from talking to a human.  It would be helpful for TurboTax to investigate and update instructions

after about 4 hrs on phone and 2 different days of calling back, it was resolved. (Needless to say the waiting time was over 45 minutes to just get to talk to anyone!) the Truth is, this is a nightmare and no way it was setup thas way with any good faith in mind. that in itself is a no use ever again.

Unless you know of a reason for the distribution to not be taxable, you would enter the full distribution amount as taxable. One reason it may not be taxable in the US is because you are a Canadian citizen and as such you report the income as being taxable in Canada. It cannot be taxed in both countries as a result of a treaty.

Hi @baldietax thanks for your quick reply. I don't have 8606 form for last year and this year. Also it seems i missed to show this 2000$ contribution in 2024 ITR return as it was not part of 1099-R 2024 form. May i know what should be recommeded steps now?

Are you both age 55 or older?   Did you indicate that you were both covered by a qualifying HDHP for all year?  Both spouses must run the interview and say they are "covered" -- if it is a family policy from one spouse the covers the other, the spouse who is covered must fill out the interview because they "covered" even if they are not the "owner."   How did you enter the contributions?  If this was a rollover from an IRA, did you receive 1099-Rs from the IRAs, or did you enter the contributions as direct contributions, or both?  A rollover contribution is only entered from a 1099-R and not in the contribution section.  Some brokers may mistakenly not issue a 1099-R or use the wrong code.  Did you get a 1099-R from the IRA and what code is in box 7?

I assume you are trying to print a 1099-Misc you created in TurboTax. If so, be sure the form is finalized before printing in the Print Center. If this doesn't resolve the issue, try clearing your cache and deleting your cookies.   

This can refer to property such as business property, like cars or equipment you use in your small business, or can more commonly refer to what we would think of as investment property, such as stock or bond transactions, or cryptocurrency.    Did you have any gain or loss income from transactions involving assets like those listed above? Or did you dispose of assets used in your business this year? That can help us troubleshoot the federal-state differences in reporting. 

thanks for all your advise. I did figure out that the problem was as stated. There was no value in the state distribution box 16 which was why the software flagged it. Once i added the gross distribution amount to box 16 i was able to transmit the return. The 1099-R from both last year and this year do not have the amount in box 16, but i don't remember having to manually add it when doing last years return. Thanks again    

The MI-1040 instructions explicitly allow a dependent to claim a $1,500 exemption, so the adjustment is likely just a computer error.    Michigan law allows for this: you get the full child exemption on your taxes, and he gets the smaller $1,500 credit on his.    To fix this, you should respond to the notice via the Michigan Treasury eServices portal, providing a copy of his return and yours to prove he is a qualifying dependent; they typically reverse these adjustments once a human reviews the manual entry.

The numbers you're seeing, especially the $40,540 figure, are the result of the Capital Gain Rate Differential Adjustment. This is likely the issue you are faced with.   The IRS uses the .4054 multiplier because you are paying a lower tax rate (15%) on that $100k than you are on your ordinary income (24%).   If the IRS let you report the full $100k on Form 1116, you’d end up using foreign taxes paid on income taxed at 15% in the US to offset taxes in your 24% bracket. To avoid this, the IRS reduces the amount of foreign income you can claim, so it matches the lower US tax rate.   You mentioned you did not tick the box for "Unrecaptured Section 1250 gain." This may be a potential red flag.   In the US, when you sell a rental property, the depreciation you took (or should have taken) over the years is "recaptured." This portion of the gain is taxed at a maximum of 25%, not 15%. If you had $20k of depreciation over the life of the property, $20k of your $100k gain should be taxed at 25%, and $80k at 15%. The Net Investment Income Tax (NIIT) of 3.8% is a separate issue..   Standard Foreign Tax Credits (Form 1116) cannot be used to offset NIIT.  While there is a complex workaround using the US-Australia Tax Treaty (Section 59(a)(2)), most standard tax software won't calculate this. You effectively have to claim a "Treaty-Based Return Position" (Form 8833). Without this, the $3,800 is a flat cost regardless of how much you paid in Australia. Keep in mind, the $24k of taxes you didn't get to use ($32k paid minus $8k used) isn't gone. It carries back 1 year and forward 10 years to offset future foreign passive income.    Please reach back if you have additional questions.