Is a distribution received in 2019 of ineligible HSA salary reduction contributions made in 2018 reported in 2018 or in 2019?

[bmdlld2019]

In 2018, I contributed to a health savings account through pre-tax salary reduction contributions.  I recently learned that my wife enrolled in an FSA in May, 2018, making me HSA-ineligible.  I have asked for a return of the $2,000 in HSA contributions that were made after April of 2018.  How do I report the $2,000?  Is it reported on may 2018 return?  Or is is reported in 2019 because that is the year in which the amount will be received?

[BMcCalpin]

In the HSA interview in TurboTax, you should check the box that you had HDHP coverage at some point in 2018, and when the three new lines appear, check that you had different coverage at different times of the year.

On the next screen, enter Self or Family (whichever applies) for January through April. NOTE: what is important is the coverage that you had on the first day of the month - if your spouse's FSA did not begin coverage until May 2nd or later, then May is also an HDHP month. For every month that you were covered under her FSA, check "None".

This is likely to trigger an excess HSA contribution error message. Since your contributions were through your W-2, the amount of the excess will be added to line 21 Other Income on Schedule 1 (Form 1040) to be taxed (this is because the original code W amount was removed from Wages in box 1, 3, and 5, so they have to get added back to your income).

Yes, this is on your 2018 return.

Then, in early 2020, you should receive a 1099-SA with a distribution code of '2' and the amount of earnings in box 2. The earnings will be added to your 2019 tax return.

If the excess reported by TurboTax is not the $2,000 that you reported, then please make a new post here at AnswerXchange reporting the fact that you made excess contributions but withdrew the wrong amount. Tell us how much and what date you made the withdrawal.