1099SA despite withdrew prior to tax return deadline

[newbie_tax]

In 2022, my employer over-contributed to my HSA. I withdrew the excess amount but didn't withdraw the interest accrued on it before the 2022 tax return deadline in 2023. Despite this, I received a 1099-SA for 2023. What should I do next? Thank you!

[BillM223]

In early 2023, did you ask the HSA custodian to withdraw excess contributions of $X? That should have triggered the custodian to calculate the excess. 

If the excess consisted of "employer" contributions (i.e., code W amount in box 12 of your W-2), then at the moment that your excess was discovered by TurboTax, the excess should have been added back to line 8f on Schedule 1 (1040) as Other Income.

This 1099-SA that you received, did it have a distribution code in box 3 of '2'? If so, then the box 2 amount must have been the earnings, and the box 1 amount would be the sum of the excess withdrawn plus the excess.

Let's confirm this before the next step.

[newbie_tax]

The excessive contribution happened in 2022 and I withdrew the excessive amount by myself and added it to Other Income in 2022 tax return (1040 8f Income from Form 8889).

Yes there is a distribution code in box 3 of '2'. 1099-SA box 2 amount was the earning and box 1 was the sum of the excess withdrawn plus the earning in box 2.

Thank you!

[BillM223]

OK, so you have received the 1099-SA for 2023, and your description is that it is correct.

Enter this 1099-SA into your 2023 return. You should see the earnings be added to line 8f of Schedule 1 (1040) if I remember that correctly.

I am a bit concerned about "I withdrew the excessive amount by myself and added it to Other Income in 2022 tax return (1040 8f Income from Form 8889)." 

As soon as TurboTax tax detects an excess, it automatically does one of two things: adds the excess to 8f of Schedule 1 (1040) or removes it from line 13 of Schedule 1 (1040), depending on the source. So I am concerned because it sounds like you did your own thing to do the same, duplicating the effect. If so, you have overpaid. Can you check your 2022 return to make sure you didn't double-ding yourself?

If that's OK, then when you pay income tax on the earnings, you will be reasonably done with this. You haven't withdrawn the earnings, but since you will have paid tax on the earnings, if and when anyone ever notices, the amount will be so small as to be easily dealt with at that time.

[newbie_tax]

Yes, I noticed that the earning amount is included on line 8f of Schedule 1 (1040) for the 2023 return.

On my 2022 return, I manually reported the excess contribution $2000 on Schedule 1, line 8f, by declaring "other income" but I did not include the earnings $50. I forgot to include the earnings from the excess contribution.

For the 2023 return, TurboTax included the earnings amount $50, which corresponds to the number in box 2 of the 1099-SA, on line 8f of Schedule 1 (1040). Could this result in an overpayment of taxes?

Additionally, should I still withdraw the amount listed in box 2 of the 1099-SA from my HSA to avoid receiving another 1099-SA from this account next year?

Thank you!

[BillM223]

"For the 2023 return, TurboTax included the earnings amount $50, which corresponds to the number in box 2 of the 1099-SA, on line 8f of Schedule 1 (1040). Could this result in an overpayment of taxes?" No, this is not an overpayment of taxes. It should be reported here.

"Additionally, should I still withdraw the amount listed in box 2 of the 1099-SA from my HSA to avoid receiving another 1099-SA from this account next year?" I don't think you will receive another 1099-SA next year from this, but you will have to ask your HSA custodian (who I suspect will be quite confused as to the question).

If you don't expect to receive another 1099-SA on this earnings amount, I would let it go. This is getting into de minimis territory, which is tax legalese for "not big enough to make a big deal out of".

Like I said, just document everything you did and why, print it, and stick it in your tax file, in the unlikely event that someone asks about it. Even in the unlikely event (as I said) that someone does, the amount of money to fix the problem in a few years will still be, well, de minimis...

[newbie_tax]

Thank you! So long as I am not double-ding myself or making any major mistake I will stick with the current 2023 return preped by turbotax software