I overfunded my HSA in 2020. Turbotax, shows line 48 of my 2020 Form 5329 as a deduction. Shouldn't it be shown as an excess employer contribution withdrawn instead?

[fr3nchfriar]

I overfunded my HSA 2020 by employer deductions from my paycheck because I had two employers they didn't notice.  I filed form 5329 in 2020 and have an amount in line 48.  I withdrew the excess contributions in 2021, and received a 1099-SA showing a distribution of excess contributions.  For some reason tubrotax is showing this sum from line 48 of form 5329 as a Deduction on my HSA summary, instead of under "Excess employer contributions withdrawn" where I would expect it.  It also shows up as a HSA contribution on the "Your tax breaks" page.

[BillM223]

"I filed form 5329 in 2020 and have an amount in line 48."

This means that you did not tell TurboTax that you withdrew the excess contributions by the due date of the 2020 return (May 17, 2021, I think?).

"I withdrew the excess contributions in 2021"

Now you are saying that you did withdraw the excess in 2021. When? Before May 17, 2021? If not, then when?

"received a 1099-SA showing a distribution of excess contributions."

Did you get this in 2021 or 2022?

"For some reason turbotax is showing this sum from line 48 of form 5329 as a Deduction on my HSA summary, instead of under "Excess employer contributions withdrawn" where I would expect it."

So was your excess equal to your HSA contributions? That is, were your entire HSA contributions declared to be in excess?

"It also shows up as a HSA contribution on the "Your tax breaks" page."

Where?

[fr3nchfriar]

So I didn't use Turbotax for 2020's taxes, but I'm using it now for 2021's taxes.

I filed form 5329 with my 2020 taxes (before April 5th 2021), with an amount of $984 in line 48.  This was the amount by which I overfunded the HSA accounts.

I probably withdrew the excess before May 17, 2021, but I don't think I withdrew it before filing my taxes.  You have to withdraw the excess and any gains.  To be sure I got any gains, I requested a withdraw of $985.  The actual withdraw was for $985 and included $0.16 as "earnings on excess contributions".  I was surprised the HSA company calculated this out, I had assumed they wouldn't.

This tax season I received the 1099-SA for calendar year 2021.

My entire HSA contributions were not declared to be in excess.  Turbotax has a HSA summary page with the following information:

Deduction

Total distributions

Taxable distributions

Taxable earnings on excess contributions

Tax-free employer contributions

Excess employer contributions withdrawn

All my 2021 HSA contributions are listed under 'Tax-free employer contributions'.  But the 'Deduction' category has $984 listed in it, and the 'Excess employer contributions withdrawn' has nothing listed in it.

[BillM223]

Please give us the HSA Summary page with the numbers on it.

And when you withdrew that excess before May 17, 2021, did you tell the HSA custodian that you were withdrawing an excess contribution? It make a difference on how they record it.

[fr3nchfriar]

Here is the summary page with numbers.  Note this is a family HDHP with HSA, second dollar figures are for my SO, we're filling jointly:

Deduction   $984   $0

Total distributions $5,879   $0 

Taxable distributions  $0   $0 

Taxable earnings on excess contributions  $0   $0 

Tax-free employer contributions  $5,972   $0

Excess employer contributions withdrawn  $0   $0    

Yes, when I withdrew the excess, I told the HSA custodian it was an excess contribution.  They had a special form for that.

[BillM223]

"Deduction   $984" - this means that you have an amount on line 13 on Schedule 1 (1040). This is a contribution made by you directly to the HSA custodian.

But you said earlier that you had made contributions through two different employers (which appears in box 12 of your W-2 with a code of your W-2s).

If you didn't make a contribution directly to your HSA custodian, then I am thinking that on the screen in the HSA interview where you are asked if you made any direct (personal) contributions to your HSA, that you entered 984 here, because it was the amount of deductions you made through a payroll deduction program, so you considered this "your" contribution.

The problem is that in the land of the IRS, any contribution made though your employer is considered an "employer" contribution, so adding part of the code W amount into that other line about personal contributions is double dipping, and likely to lead to excess HSA contributions messages.

And actually, it is good for you to contribute through your employer - because the code W amount is removed from Wages in boxes 1,3, and 5 on your W-2 before it is printed. That means that not only do you not pay income tax on that amount, but you also don't pay Social Security or Medicare taxes on it, either.

Is this what happened?

[fr3nchfriar]

I've made no contributions directly to my HSA custodian, ever.  They've always been through employer payroll deductions.  Because I had two HSA providers in 2020, it was easy to overfund them while trying to maximize the amount.

I have '0' entered where it asks for direct (personal) contributions to your HSA.

The only place I have 984 entered is in this set of instructions:

"Did you overfund your HSA in 2020?
If your HSA was overfunded (also called excess contributions) in a previous year, it may affect your 2021 return."
Yes
"Enter Last Year's Excess Contribution
Enter the amount from line 48 on your 2020 Form 5329"
984

To test it, I tried entering 983, and 987 on those screens, and both times, it carries that number over to the "Deduction"  and presumably to line 13 on Schedule 1 (1040).

It doesn't make any sense.

The section you mentioned looks like this:

Let's enter [name]'s HSA contributions

Don't include contributions from cafeteria plans, IRAs, or rollovers from other health plan accounts.

2021 employer payroll contributions $5,972
(Box 12 of your W-2)

Any contributions you personally made $0
(not through your employer)

If I change that $0 to $202, it'll change the 'Deduction' from $984 to $1,186.

So, Turbotax definitely thinks I get a deduction in 2021's taxes of overcontributions made to my HSA in 2020.  Is it because I put the contributions on my 2020 taxes, and them removed them from my HSA?

[BillM223]

Ah! When you have a carry over of excess HSA contributions, then it can be applied to next year's HSA reporting (form 8889), as if you made a direct contribution to your HSA contribution.

Actually, I don't usually tell taxpayers this because this carry over does not show up on line 2 of the 8889 because it's not described that way in the 8889 instructions. So the 8889 looks strange.

Indeed, the IRS has a Powerpoint for VITA volunteers that shows that the carry over instead reduces the annual HSA contribution limit for the next year, but the instructions don't show that either.

But the net effect of either action is the same. If your excess contribution from, say, tax year 2020 is $1,000 and your annual HSA contribution limit for tax year 2021 is $3,600, then if you contribute no more than $2,600 in actual HSA contributions (whether through the employer or directly), the $1,000 carried over will be "used up" in tax year 2021 as if you had contributed it directly to the HSA in 2021. And after that, there will be no more carry over.

So, you have Family HDHP coverage, you contributed through employers $5,972, and had a carry over of $984 which you wanted used up in 2021, then this is how it would look. Sorry, it's confusing, but that's due to the fact that form 8889 is limited in its design, and handling carry overs goes somewhat beyond those limits.

Not to worry, all your numbers make sense now.