Amount shown on form 5329, line 47 is labeled "excess contribution" but it is being pulled from form 5329-T Line 47 which is Total HSA contribution. How to correct?

[larry-lasday]

Please explain why HSA tax penalty calculation appears to be incorrect?

[larry-lasday]

Correction:  the amount from form 5329 line 47 is being pulled from form 8889 line 2.

[BillM223]

Form 8889 line 2 are your "personal" HSA contributions, i.e., contributions NOT through your employer. It is also the amount of the excess HSA contributions from the previous year(s).

You are describing a situation where your personal contributions (if any) are in excess for the current year. This can be caused by two things:

• You did not go through the HSA interview, nor told TurboTax what kind of HDHP coverage you had nor for how many months, or
• The amount of excess from the previous year fully completed this year's HSA contribution limit, so your current year contributions were all in excess.

In either case, we need you to possibly update your entries in the HSA interview.

• How much were your HSA contributions for 2024?
• How were they made, through your employer or directly?
• What kind of HDHP coverage did you have (Family or Self-only)?
• How many months did you have this coverage?
• Did you carry over any excess contributions from 2023?

This will give us a good start. 

[larry-lasday]

Thanks for your response.  Here is what is driving my question. I started receiving Medicare in October of 2024. At the time, I did not realize that meant I could no longer make HSA contributions through my employer's payroll deduction process. Since I made $715 of contributions post Oct 1, I requested and received a check for these $715 of excess contributions. I know I have to show this $715 as other income on schedule 1, but did not know mechanically how to accomplish that in TurboTax.  My problem was that form 8889T "calculated" an excess contribution of $537 instead of $715.  Since I could not figure out a way to change the Turbotax calculation, my solution was to add the $178 delta to schedule 1 under other income (8Z) with a comment. 

[BillM223]

First, the moment that TurboTax detected excess HSA contributions, TurboTax automatically added that amount to Schedule 1 IF the contributions were done through an employer (as yours seem to have been).

So you do not need to do anything to accomplish this. Have you already filed your return (I hope not)? If not, please remove that $178 delta from Schedule 1.

This happens because taxpayers read the IRS instructions literally - you can't contribute to an HSA when you are covered by Medicare. But that's not how it works. How it works is that your annual HSA contribution limit is calculated by the number of months you had HDHP coverage with no conflict (in your case, Medicare). So, if you had Self-only coverage Jan through Sept, that would be ($4,150 + $1,000) times 8 months divided by 12 months, if I counted on my fingers and toes correctly.

It does not matter to the IRS in which months you made these contributions; indeed, the software is written such that had you made the entire contribution in November, if the sum of the contribution ($4,400 in your case?) was less than your calculated HSA contribution, that would be fine with the IRS. Note that neither TurboTax nor the IRS ask you which months your contributions were in.

So TurboTax correctly calculated your excess to be $537. That should appear on Schedule 1 of the 1040. Please don't worry about tweaking your return - TurboTax already took care of it.

As for the earnings on the excess, the HSA custodian SHOULD (not all are willing) calculate your earnings on that amount. Then you will be sent a 1099-SA form from the custodian, to show the amount of the excess (which won't be taxed again), and the earnings (which will be taxed). This form will arrive anytime between now and before January 31, 2026. This form gets added to your 2026 return.

Oh, one more thought. Since you requested a withdrawal of $715 which you thought was the excess, you will need to enter the 1099-SA and show that part of it ($537) was an excess contribution and the balance ($178) was a distribution not for medical expenses, which will be added to Other Income as well as would have been hit with a 20% penalty except that you are 65+.

For anyone else reading this, this is a good reason not to assume that you know the amount of the excess. Even if you think you do, just defer it until you start your tax return and let TurboTax figure it out.

[larry-lasday]

Thanks so much for taking the time to reply with such a clear explanation. That is a huge help.  I have not yet submitted so I would appreciate your help in how I should mechanically enter this into TurboTax.  I have removed the $178 from schedule 1.  I have a 1099-SA that shows the $715 distribution with code 2 (excess contributions) in box 3.

Although I have one 1099-SA for $715 with distribution code 2, are you saying I should enter 2 1099-SAs into Turbo Tax, one with $537 with distribution code 2 and 1 for $178 with distribution code 5 (Prohibited transaction). That will get me to the correct tax answer, but I will be entering 2 separate 1099's when in fact I only received 1 for the $715 total. 

Thanks again for your valuable insights.

.

[BillM223]

Well, another thought occurs to me. You might (if your HSA custodian has a sense of humor) tell the HSA custodian that the $715 was a mistaken distribution. The withdrawal of mistaken contributions was really supposed to be $537.

If the HSA custodian accepts this (they don't have to), they will expect you to send you a check for the $715 that they sent you, and then they would send you $537 back for the correct withdrawal. This would bring your tax return into conformity with your bank balance (since TurboTax handled the actual and correct withdrawal).

Otherwise the two 1099-SAs may be necessary...but work on the HSA custodian first to see if they will let you "fix" the withdrawal for excess contributions.