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lindagaboardi
New Member

I have an excess contribution distribution, but no form 5329

In 2015, I subtracted the excess contribution from my HSA amount, because I had no form. I received a check in 2016, but I pre-deducted it on last year's return by hand. Will that cause a red flag for the IRS?
1 Best answer

Accepted Solutions
BMcCalpin
Level 13

I have an excess contribution distribution, but no form 5329

The way this is supposed to work is as follows:
  1. You make an excess contribution in 2015
  2. You tell TurboTax in early 2016 when doing your 2015 return that you will withdraw the excess by the original due date (April 19 2016 or whatever it was for tax year 2015)
  3. You call the HSA plan administrator and ask for the removal of excess distributions (it sounds like you did this)
  4. TurboTax automatically adds the amount of the excess to Other Income on Line 21 on your 2015 1040 - IF your contributions were on your W-2 in box 12 with a code "W"
  5. No excess is carried over to 2016, so once you have done the previous items, the excess is gone.
  6. In early 2017, the HSA plan administrator sends you a second 1099-SA, this time with a code of "2" in box 3 (Distribution code), and the earnings that your excess earned while in your HSA
  7. Despite the presence of an amount in box 1 (Gross Distribution) (if any), if the box 3 code is "2", only the earnings in box 2 are added to income in tax year 2016. Note that if you took distributions from your HSA in 2016, then you will also receive the regular 1099-SA for that

If this was your experience, then everything is OK - the IRS sees this treatment of excess contributions a lot.

But I am not sure what you meant by "I pre-deducted it on last year's return by hand". Excess contributions aren't "deducted", they're added to your income, and with TurboTax makes the adjustment for you, so you don't need to.

View solution in original post

4 Replies
BMcCalpin
Level 13

I have an excess contribution distribution, but no form 5329

The way this is supposed to work is as follows:
  1. You make an excess contribution in 2015
  2. You tell TurboTax in early 2016 when doing your 2015 return that you will withdraw the excess by the original due date (April 19 2016 or whatever it was for tax year 2015)
  3. You call the HSA plan administrator and ask for the removal of excess distributions (it sounds like you did this)
  4. TurboTax automatically adds the amount of the excess to Other Income on Line 21 on your 2015 1040 - IF your contributions were on your W-2 in box 12 with a code "W"
  5. No excess is carried over to 2016, so once you have done the previous items, the excess is gone.
  6. In early 2017, the HSA plan administrator sends you a second 1099-SA, this time with a code of "2" in box 3 (Distribution code), and the earnings that your excess earned while in your HSA
  7. Despite the presence of an amount in box 1 (Gross Distribution) (if any), if the box 3 code is "2", only the earnings in box 2 are added to income in tax year 2016. Note that if you took distributions from your HSA in 2016, then you will also receive the regular 1099-SA for that

If this was your experience, then everything is OK - the IRS sees this treatment of excess contributions a lot.

But I am not sure what you meant by "I pre-deducted it on last year's return by hand". Excess contributions aren't "deducted", they're added to your income, and with TurboTax makes the adjustment for you, so you don't need to.

lindagaboardi
New Member

I have an excess contribution distribution, but no form 5329

Thank you! (I "pre-deducted"it from my HSA- I meant.) I couldn't find the amount until you pointed out the Line #.
sammysandiego
Level 1

I have an excess contribution distribution, but no form 5329

I have a related question on this.  What happens if you don't withdraw the excess and just pay the extra 6% tax?  I thought this would just be easier as it was a small amount in my case but I'm confused on how TurboTax is handling it on my CA tax return.   It almost seems like TT always thinks it's withdrawn maybe?

 

For 2019, my w-2 (box 12c Code W) reported amount X for HSA contributions and my 5498 reported X+Y amount. My employer made an extra Y contribution when transitioning to a different company so that explains the difference. I was only in HDHP for 3 months so that exceeded my HSA pro-rated contribution limit for the year. I'm using Turbotax and reported that my employer made an additional contribution etc. and everything works out fine in my Federal taxes as the extra Z amount over my HSA pro-rated limit was added as income and taxed appropriately with extra 6%.

 

However, for my California Adjustments, I see the amount Z (that exceeded my pro-rated contribution limit) in Row 8f Column B as a SUBTRACTION. Should it be a subtraction? The filled-in description for the row says "HSA Distributions", which it wasn't technically. Is this correct? Additionally, I see Row 1 Column C to be X+Y, not just the X reported in my W-2. Is this correct?

 

Thanks.

VictoriaD75
Employee Tax Expert

I have an excess contribution distribution, but no form 5329

The excise tax applies to each tax year the excess contribution remains in the account. So, if you do not withdraw the excess contribution, you will continue to be assessed the excise tax.

 

You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.

  • You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
  • You withdraw any income earned on the withdrawn contributions and include the earnings in "Other income" on your tax return for the year you withdraw the contributions and earnings.

It looks like something may have been entered on your Federal return that could be carrying to your state return. Review your HSA entries.

 

Under the Deductions & Credits menu, confirm the following:

  • Expand the menu for Medical
  • Click Start/Revisit next to HSA, MSA Contributions
  • Confirm the account ownership and click Continue
  • Continue in through the screens until you reach Let's enter your HSA contributions
  • Stop here. If all of your contributions were through payroll deductions and reported on your W2, do not enter anything on this screen. If that is the case, either leave the box empty or type $0 in the box next to Any contributions you personally made
  • Review the entries related to excess contributions 
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