How to report same year 1099-SA excess contribution (box 2) in addition to normal distribution (box 1)?

[mangmang1216]

My employer made a mistake and contributed $100 extra to my HSA account in 2017 (above $3400). Realizing the mistake I contacted my employer (who wouldn't do anything) and my HSA provider (who took it out of the account in 1/3/2018). Currently my W-2 form still reports $3500 under 12a and my 1099-SA still only shows normal distribution amount I used in 2017 (box 1 and code 1). I called my HSA provider asking for a revised 1099-SA with the "excessive contribution" report; however, they said they would not update the system until April so they couldn't provide the information but I can still go ahead and report to IRS that I took out the excess contribution. Now my question is:

1. Should I report that I actually took out the excess contribution somehow? If so, should I enter 2 HSA accounts (one with normal distribution code and one with excess contribution code) or should I enter 1 HSA account (report normal distribution from box 1 and excess contribution from box 2 and use the distribution code 2).

2. Should I just NOT report that I actually took out the excess contribution already before tax date and report it on next year's return? (aka get penalized for now)

Thanks!

[LisaBr · Accepted solution]

After entering the excess contribution the way they are, you will get a prompt from TurboTax saying that you have an excess contribution.  This is along the end of other information regarding you HSA.

Then you will see a screen that actually asks if you will be removing the excess contribution prior to April 17, 2018.  Of course, you already have removed it, so your answer is Yes.

This will clear up this problem that your employer has created and set you back even with the IRS.

If while doing this, you get stuck, please let me know so I can help you take care of the excess contributions.

[dmertz]

By responding to TurboTax as TurboTaxListBr described and indicating that $100 of the contribution will be returned, TurboTax will automatically report the $100 on Form 1040 line 21 as Other income.  This is necessary because the $100 had been excluded from the amount in box 1 of your W-2.

And when you get the code 2 2018 Form 1099-SA reporting the return of the excess contribution, you'll enter that into 2018 TurboTax.  Any earnings that accompanied the return of the $100 excess contribution will appear in box 2 of this Form 1099-R and will be taxable as Other income on your 2018 tax return.

[mangmang1216]

Thank you both! Just to clarify, as long as I tell TurboTax that I will (have) take out the excess contribution by April 2018, that amount will be AUTOMATICALLY added to line 21 of 1040 as Other income (similar to how 1099-Misc work) and I would not be penalized by IRS for over-contribution.

THIS YEAR RETURN (2017), I don't need to do anything to the 2017 1099-SA (box 1 stays the same distribution amount and box 3 still says 1).

NEXT YEAR RETURN (2018), I will receive TWO forms from my HSA provider, one for excess contribution in 2017 and one for normal distribution in 2018. Then for NEXT YEAR RETURN (2018), I will need to file TWO separate HSA entries (each one under its own Box 3 code).

Somehow I feel like it'd be so much easier if I could just report it on this year (2017)'s tax return since I already corrected the problem but I guess if this is the only way I'll have to remember in a year's time 🙂

[dmertz]

Correct.  Had you obtained the return of excess contribution before the end of 2017, you would have received a code 2 2017 Form 1099-SA and everything regarding the return of excess contribution it would have been taken care of on your 2017 tax return.  You missed that by a few days, so it must be reported by the HSA custodian on a 2018 Form 1099-SA which must be reported on your 2018 tax return.  You'll be reminded about this when you get the code 2 2018 Form 1099-SA next year; it will take only a minute or two to enter it.

[e_pino20]

Do I need an amended w 2?

[e_pino20]

Do I put no for HSA contributions for the state portion?

[dmertz]

e-pino20, please ask these question in an new, separate question since the details of your situation will be different.