Health Savings Account. I received Medicare 6 mo retroactively, while making contributions on the account. I understand I can take money out, but how to fix taxes?

[sima]

It happened in 2016.  I understand I can withdraw money from the plan, but they will reflect in W-2 box w-12 anyway.  My contributions as an employee were pretax.  How to handle this?

[Opus 17]

In what year did this occur?  If it all happened in 2016, it's fairly easy to fix, but you need to contact the plan administrator with some specific requests.  If it happened in different years or over more than one year, you have some different options.

[ghost]

@sima although your W2 may show the contribution in box 12 code W, there will be a Form 5498-SA issued in May or June that reports the actual 2016 HSA contribution (so the IRS will see the actual amount contributed). Form 5498-SA should indicate the correct amount (W2 contribution amount minus excess contribution withdrawn amount). In Turbotax, be sure to indicate the excess withdrawn amount when asked. Your Form 8889 should show the correct HSA contribution and no penalty.

[sima]

Thank you so much for answering my question.  The only thing-Employer Contributions are included into my wages (box 1). Only Employee contributions are pre-taxed.  If I withdraw both and then report as the excess contribution, won't I be taxed twice for Employer contributions?

[Opus 17]

Employer contributions to an HSA should not be in box 1.  Are you sure?

[ghost]

If your employer puts the sum of their contribution and your payroll contribution in W2, box 12 code W, then they should omit that entire amount from box 1, box 3 and box 5 wages.

If they are putting all in box 12 W and including theirs in your wages, that's incorrect.

If they are only putting your amount in box 12 and including their amount as wages, you must manually add the company amount as an after tax contribution to receive the tax deduction (however you miss out on the SS and Medicare tax break).

Any money your employer deposits on your behalf, no matter the source, is normally a pretax HSA contribution.

[sima]

Thank you very much.

[Opus 17]

You need to withdraw the ineligible contributions plus any money they earned.  Make sure you tell the plan administrator what you want to do so they record it correctly on their tax forms.  Then in turbotax, you will be asked about withdrawal of ineligible contributions and earnings.  The income will be added back to your tax return on line 21 "other income" by turbotax.  

The deadline to do this is tax day (April 18, 2017 for tax year 2016) and in fact, you can make the withdrawal after you file your tax return, if you file before April 18.  You would fill out your return as if you had already withdrawn the money.  But, due to the possibility of a mistake, I strongly recommend withdrawing the excess first, so you know the amount to report (contributions plus earnings).