I contributed $3650 to HSA in 2024. My turbo tax shows excess contribution of $3150. Why? How can I remove it from Form 5329?

[BillM223]

TurboTax calculates your excess based on what your HDHP coverage was (months and type), how much you contributed to your HSA in 2024, and if you had any carryover of excess contributions from 2023.

If the excess was created in 2024, then go back to the HSA interview and on the screen where TurboTax tells you you have an excess, then tell TurboTax that you will withdraw as much as you can.

Only the excess that is not withdrawn is carried over to the next year and you get a 6% penalty.

But it's possible that you made an error in input.

Please read the following:

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

As you probably know, the maximum limits in 2024 are:

• $4,150 - individual with self-coverage
• $8,300 - 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.

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 HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2024?".

Fourth, if you had a carryover of excess contributions from 2023, then this carryover is applied to 2024 as a reduction to the 2024 HSA contribution limit, which could cause an excess condition in 2024 as well. But note: if you had an excess contribution in 2023 but cured it by withdrawing the excess in early 2024, then do NOT report an "overfunding" on your 2024 return.

Fifth, the Family limit ($8,300) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $8,300 to his/her HSA and the other contribute $4,150 to the other HSA – the $8,300 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $4,150.