Employer Contributions to HSA showing as Excess Contributions on Form 5329

[matt27]

My employer contributed $1650 to my HSA and it is coded as W in Line 12b of my W2. This shows on line 9 of Form 8889. The problem is that it also shows on  line 47 of Form 5329 as Excess Contributions. This is not over the amount that is allowable, why is it automatically added as excess?

[BMcCalpin · Accepted solution]

Taxpayers often accidentally make entries in TurboTax that tell TurboTax that they made excess contributions. Please read the following for common reasons why this happens.

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

As you probably know, the maximum limits in 2017 are:

• $3,400 - individual with self-coverage
• $6,750 - individual with family coverage
• If the HSA owner is 55 or older, then you add $1,000 to these amounts.

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced. 

There are several major culprits for excess contributions (other than just actually contributing more than the limit). 

First, if you did not complete the HSA interview - that is, go all the way until you are returned to the "Your Tax Breaks" page - the limit still might be set to zero, causes a misleading excess contribution message. 

There are questions all the way to the end of the interview that affect the annual contribution limit.

Second, it is not unusual for taxpayers to accidentally duplicate their contributions by mistakenly entering what they perceive to be "their" contributions into the second line on the "Let's enter your HSA contributions" screen (see screenshot below). 

Normally, any employee who made contributions to his/her HSA through a payroll deduction plan has the contributions included in the amount with code "W" in box 12 on the W-2. This is on the first line on this screen (above). Don't enter the code W amount anywhere on the return other than on the W-2 page.

Third, if you weren't in the HSA all 12 months, then the annual contribution limit is reduced on a per month ratio. 

Fourth , if you had a carryover of excess contributions from 2016, then this carryover is applied to 2017 as a personal contribution, which could cause an excess condition in 2017 as well. But note: if you had an excess contribution in 2016 but cured it by withdrawing the excess in early 2017, then do NOT report an "overfunding" on your 2017 return.

[matt27]

Could you please post the screenshot you mentioned? I don't see it above. This is for an Individual with Family Coverage and the only place I entered HSA info was in the W2 and from Form 1099-SA (I don't remember where this is entered). 1099-SA has $1800. Total between the two is 3450.00. I did complete the entire HSA section. I switched jobs in June so I wasn't covered by the same HSA account. How much is the monthly reduction? The strange thing is that the excess amount is the exact same as the amount entered on the W2.

[BMcCalpin]

First, I have added the screenshot (sorry, but I do this so often that I sometimes forget).

Second, the issue of reduction (in the limit, I assume you meant) is a question of HDHP coverage, not HSA. The HSA belongs to you, not your employer, and you can keep it if you change jobs. You just have to tell the new employer to send the contributions to the old HSA.

If you have already created a second HSA and there is money in both, you can decide which one you want to keep and call the HSA administrator to ask them to roll it over to the other account.

If you didn't do item #2 above (the usual cause), then make sure you indicated that you had HDHP coverage for every month that you did (and that you didn't have Medicare and that you didn't have a carryover from last year, and so on).

[matt1blyth666]

The interview in Turbo Tax makes no mention of an HSA for an Individual with Family Coverage.   It shows that my $3,600 contribution for both Employer and Employee contributions is Taxable.   You need to redesign the interview guide.  Way too confusing.  This makes me want to go back to doing the Forms myself manually as I know what the proper tax treatment should be, but I can't figure out the complexity of your questioning in the Interview.

[DJ8215]

I have a similar situation, 2 different employers and each contributed to hsa that put me over the limit.  should this be counted as excess contributions.

[Critter]

First you failed to tell the second employer of the amount you already contributed to the HSA ... if you had that employer would not have over withheld.    

If you’ve contributed too much to your HSA this year, you can do one of two things:

1. Remove the excess contributions and the net income attributable to the excess contribution before they file their federal income tax return (including extensions). You’ll pay income taxes on the excess removed from your HSA.

2. Leave the excess contributions in your HSA and pay 6% excise tax on excess contributions. Next year you may want to consider contributing less than the annual limit to you HSA to make up for the excess contribution during the previous year.