I made a prior year (2017) hsa contribution in February of 2018. I showed the contribution in my 2017 taxes but didn't realize I had to mail a check with a deposit slip to my benefit wallet-bank of New York Mellon. Is it allowable for them to make this adjustment since my contribution was prior to tax deadline?
Your question is not clear. Did you actually make a deposit to your HSA account before April 15 or not?
Yes, the question isn't clear but the information provides details. Thanks for help
If you didn't actually make a deposit (since no check was sent to the bank with the request) then you cannot claim you did on the tax return ... you need to amend the return and remove the contribution that was never really made.
I made an online deposit. The requirement of mailing a check was unknown. I'm asking if a holding company can recode to the correct year
That is a question for them ... if you made the deposit timely and they didn't acknowledge it then it is up to them to make the correction if they can.
It seems that this HSA custodian only permits an HSA contribution to be designated for the prior year if it is made by check and is accompanied by a deposit form explicitly indicating that the contribution is for the prior year. An HSA custodian is not permitted to re-designate the year for which the contribution is made after the regular filing deadline of the tax return for the prior year unless you had properly provided explicit instruction that the contribution was for the prior year and they failed to follow that instruction.
If the custodian were to change re-designate the contribution as being for the prior year they would have to issue a corrected 2017 Form 5498-SA to show that contribution in box 3. They are only going to do that if they were the ones who made the error.
Thank you, I appreciate your answer. It helped. It's funny you mention the error as I was told I should of checked the prior year box when depositing online but there wasn't a check box to do so until today. Luckily, I have photos. The requirements of a prior year contribution were unknown to me and not easily found on the website.
Note that if the bank refuses to re-characterize the deposit as for 2017, you will need to file an amended tax return and pay the back taxes. You will also be limited in what you can contribute for 2018. If you need to withdraw money for 2018 so that you stay under the contribution limit, be sure to request a "return of excess contributions", which may require a special form. It is NOT a normal withdrawal.
Here are the amending instructions. <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/replies/3288565">https://ttlc.intuit.com/replies/3288565</a>
Also, if you are ticked off and want to change banks, you can do one rollover per year, like an IRA, or you can do a direct institutional transfer (much better for several reasons). Many banks will host private HSA accounts. However, there may be monthly fees or minimum deposit amounts,
The BOA Merrill Lynch HSA Disclosures and Account Agreement (which you agreed to in the process of opening the account) states:
"Contributions made during a calendar year are generally treated as contributions for that calendar year. However, if you make a contribution between January 1 and April 15 and designate in written instructions that it is for the prior year, Merrill Lynch will treat the contribution as being for the prior year."
<a rel="nofollow" target="_blank" href="https://olui2.fs.ml.com/publish/content/application/pdf/GWMOL/HSADisclosureStatementandAccountAgreement.pdf">https://olui2.fs.ml.com/publish/content/application/pdf/GWMOL/HSADisclosureStatementandAccountAgreement.pdf</a>
Sorry, I misread "Mellon" as "Merrill." Here is the equivalent from NY Mellon's HSA Agreement and Disclosure Statement:
"Prior Year Contributions. Subject to applicable law, we will report to the Internal Revenue Service a contribution to your Account in one year as though made in the previous year only if (a) your deposit is made by April 15, and (b) your deposit is accompanied by our approved form of deposit slip properly completed to indicate that you want that deposit to be credited as a deposit made in the prior year. In the event of employer contribution, the transmittal instructions must indicate a prior year effective date."
<a rel="nofollow" target="_blank" href="https://mybenefitwallet.com/CMS/docs/default/DADs.pdf">https://mybenefitwallet.com/CMS/docs/default/DADs.pdf</a>
Under the circumstances, I see no reason that NY Mellon would accommodate a request to re-designate the contribution as being for the prior year and they have no obligation to do so.
Generally speaking, you have to tell the bank when you make a deposit, whether it is for the previous year or current year. I always make electronic transfers and there is a drop-down menu to select which kind of deposit I am making.
If you mailed a check, and the bank assigned it to the wrong year, it is up to the bank to correct the record. There is nothing in the tax code that says they can't, but there is nothing in the tax code that says they must, unless it is clearly their error. They would have to issue a corrected form 5498-SA to you as well.
For the bank to make the change, they would have to accept responsibility that it was their mistake to credit the deposit to 2018 (or at least agree that the instructions were ambiguous). Whether or not they do that is up to them. Also, from your mistake in February, you had 2 more months where you could have corrected the mistake before April 15, if you checked your account online. They may be reluctant to make the change now.
I suppose the bank is reluctant because, if they allowed illegitimate recharacterization, or were found on audit to have lax controls and procedures, they could get penalized. (That is, if a customer makes a deposit in March 2018 that they plan for 2018, then discover in September that they have extra money and could contribute more in 2018 if they retroactively change the other contribution to 2017, that should not be allowed, and a bank could get penalized if they have poor controls and accountability.)
Without a documented error on the part of the custodian, there would be no way to distinguish a mistaken designation on the part of the individual from an intentional designation for the current year and the individual later deciding (after the due date of the prior-year tax return) that they would like to have made an HSA contribution for the prior year. Allowing the contribution to be re-designated under these circumstances would effectively be allowing the individual to make a contribution for the prior year after the due date of the tax return for the prior year.
If the bank previously has an online form that did not allow the designation, but the online form now does have the designation, that could potentially allow an argument that the interface was ambiguous. On the other hand, if there was a FAQ or instructions on the web site that specifically said "contributions for prior year can only be made by check and you must use the specific form" then that would allow the bank to argue that the customer didn't follow the clear and unambiguous rules.
Bottom line, if the bank won't recharacterize the contribution (no matter what their argument is) the taxpayer either has to sue the bank, or amend their tax return. I doubt that suing the bank is productive or cost-effective.
I was able to contribute more because I changed from single to family insurance. I wasn't aware of this requirement. Yes, a mistake but unknown and not easily found. I found this out because my 2018 was maxed but shouldn't of been. I don't follow you. I made the contribution in February, I didn't make it in May and try and get it changed.
If you had realized before April 15 that the bank had not characterized your February deposit the way you wanted them to, you might have had more options to correct the mistake.
As it is, if the instructions were clear and you didn't follow them correctly, I don't see how the bank can recharacterize the deposit for you. You would have to show that the bank made a mistake, or that their instructions were so unclear that you could not reasonably follow them.
The instructions are clear but they are hidden. They are a holder who sends out all info to the IRS. I'm responsible for my tax situation thus when I was unable to find anything on the website except a hsa contribution page that allows a deposit, I thought I was responsible for accounting for it. Now, I'm finding out that the online deposit should of had a prior year box but didn't at the time. I have proof so maybe you're wrong. I can tell by your response you've never been wrong
Don't get mad at us for a circumstance we have nothing to do with ... please direct your attention to the bank ... they are the ones you need to convince not us. Again ... good luck.
The bank has to follow IRS regulations and the law, or be penalized (up to and including having their right to host HSA accounts be taken away). You need to show to that bank that they made a mistake, so that they can recharacterize the deposit without violating IRS regulations. Maybe you could also try and show that their rules and procedures were unclear so that a reasonable person could not follow them. Otherwise, you need to sue the bank. It has nothing to do with me.
I'm not mad. I asked a tax question that I was unable to find a direct answer to online or with my benefit wallet. I found more of the same except many pointing out how this is my fault, how the instructions are clear, how they shouldn't change the code or responses like good luck, take it up with the bank. Not much help for a question as I've been taking it up with the bank.