HSA tax year correction

[Anjel12]

Hello all, 

I had HDHP for 10 months of 2024 (Jan-May and Aug-Dec). I file married jointly.

I know HSA limit if I use the last month rule is $8300 for year 2024 but I will not HDHP for the entire 2025.

My pre-tax contribution on 2024 was $8058 which is reflected on my W2, while my max limit must be 10/12*8300=$6917. To avoid penalty or taxes, I contacted the HSA trustee in Jan 2025 (before tax filing deadline) and ask to move the difference (8058-6917) to year 2025. 

Questions: 

Will I get a 1099-SA corrected for 2024 or 2025?

Will I receive a 5498-SA corrected for 2024 or 2025?

Filing 2024 taxes, where should I mention this correction has happened? or will it be reflected in 2025 filing?

Thank you very much!

[BillM223]

What is the HSA custodian going to do with that $1100 or so? I mean on their paperwork.

I can't really address your issues until I know what your HSA custodian is reporting on their books for 2024 and 2025. Did they mark 2024's contribution as 8058 or 6917? If 6917, does that mean that the HSA custodian listed the 1,141 as a real contribution for tax year 2025? Or did they assume that the 1,141 would be carried over as an excess from 2024 to 2025?

The difference is how you enter stuff into TurboTax. Let us know what the HSA custodian did.

[Anjel12]

Thanks for the reply!

Initial 5498-SA shows $8058. Below is the form I filled to have this excess processed. The title of the form is Excess Contribution and Deposit Correction Request Form

I checked the following and wrote the amount 8058-6917=$1141

Individual Contribution tax year correction. (Change INDIVIDUAL contribution from tax reporting year 2024 to 2025. Please note this correction can result in a corrected 5498-SA. 

So do you think I will receive a 5498-SA corrected for 2024? or 2025?

[BillM223 · Accepted solution]

OK, in rethinking your question, you should know that TurboTax is going to apply the last-month rule whether you like it or not. 

So you will not have an excess of HSA contributions in 2024. So you don't need to bother withdrawing the excess for 2024 or getting the HSA custodian to move it to 2025.

As you clearly realize, that means when you are doing your 2025 return in early 2026, that TurboTax will discover that "you failed to maintain HDHP coverage". Then TurboTax will run you through a lot of questions about your months covered in 2024, your contributions, and other things so it can calculate what your excess would have been if not for the last-month rule. Then on Part III on the 8889, it will calculate the amount that would have been excess (i.e., the 1,141 if your calculation was correct), enter it on line 18 and copy it to line 8f on Schedule 1 (form 1040) to be taxed as Other Income, AND hit you with a penalty of 10% on the excess.

The bad news is that this is more expensive for you, the good news is that you won't do it until next year on your 2025 return.

It would be nice if you could do what you want to do and not use the last-month return this year and avoid all this, but the current TurboTax product does not work this way. In using Step-by-Step, there is no workaround.

If you had the CD/download software, you MIGHT be able to make manual entries on form 8889 to show only 10 months of coverage, but I have never tried it...and overriding entries is likely to remove your Tax Accuracy guarantee.

So where are we? If you are using the Online product, you can't not use the last-month rule, and you will defer everything to next year as I described above. If you have the CD/download software, you may be able to get it to work, but I can't guarantee that you can do it. What do you want to do?

[Anjel12]

Thanks!

As the correction has already been processed, I will try to find a software that is not limited to the last month rule. 

Have a good day!