I made excess HSA contributions in 2018 due to only being on a HDHP for partial year. I'm making an excess contribution withdrawal. How/when is that withdrawal taxed?

Forum|Forum|7 years ago
June 6, 2019
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TurboTax Deluxe Online

Best answer by BillM223

The answer depends on how you contributed the amounts that were considered in excess.

IF the excess contributions came through your employer (i.e., from your employer PLUS from you by payroll deduction), then the excess contributions will be added back to Other Income on line 8 on Schedule 1 (Form 1040). This is done automatically by TurboTax; you do not need to do anything.

Excess contributions are considered taxable by the IRS. Since these were contributions through the employer, the excess is added back to Other Income on line 8 on Schedule 1 (Form 1040).

Why is this done? Because when your W-2 was printed, the employer removed the code W (HSA contributions) amount in box 12 on the W-2 from Wages in boxes 1, 3, and 5. That's how you get a tax benefit from employer-based HSA contributions - the contributions are removed from your income so you never pay tax on them in the first place.

But if some of your contributions were in excess, then they need to be taxed. Since the excess has already been removed from Wages, the solution is to add the excess back to your income - in line 8 in this case.

IF, on the other hand, the excess contributions come from contributions you made directly to the HSA (not through your employer), then the excess is simply removed from the deduction that you would have had on line 12 on Schedule 1 (Form 1040).

[Edited 3/20/2020 3:44 pm CDT - updated for 2019]

B

BillM223Answer

Level 15

The answer depends on how you contributed the amounts that were considered in excess.

IF the excess contributions came through your employer (i.e., from your employer PLUS from you by payroll deduction), then the excess contributions will be added back to Other Income on line 8 on Schedule 1 (Form 1040). This is done automatically by TurboTax; you do not need to do anything.

Excess contributions are considered taxable by the IRS. Since these were contributions through the employer, the excess is added back to Other Income on line 8 on Schedule 1 (Form 1040).

Why is this done? Because when your W-2 was printed, the employer removed the code W (HSA contributions) amount in box 12 on the W-2 from Wages in boxes 1, 3, and 5. That's how you get a tax benefit from employer-based HSA contributions - the contributions are removed from your income so you never pay tax on them in the first place.

But if some of your contributions were in excess, then they need to be taxed. Since the excess has already been removed from Wages, the solution is to add the excess back to your income - in line 8 in this case.

IF, on the other hand, the excess contributions come from contributions you made directly to the HSA (not through your employer), then the excess is simply removed from the deduction that you would have had on line 12 on Schedule 1 (Form 1040).

[Edited 3/20/2020 3:44 pm CDT - updated for 2019]

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D

deladron1Author

Level 2

Thank you! One clarifying question: since these excess contributions were due to partial year enrollment in a HDHP I wasn't over the full-year limit of $3,450 (just over my prorated limit based on months eligible) and thus the excess contributions aren't actually indicated on the tax forms that I received from my HSA provider. So when you say "This is done automatically by TurboTax; you do not need to do anything" is that because TurboTax will ask about the number of months that I was eligible for a HDHP and then reduce my personal HSA contribution limit accordingly?