Turbotax shows penalty for excess contribution to HSA even though I didn't go over the IRS limits for HSA

[seco]

Turbotax shows penalty for excess contribution to HSA even though I didn't go over the IRS limits for HSA.

The penalty comes from your $432 penalty for making excess contributions to a Health Savings Account.

I've checked my HSA and my contributions are: 

Amount contributed $7,200.00
  Employer contribution $1,500.00
  Your contribution $5,700.00

Family limit $7,300.00
  Amount left$100.00

Neither me nor my wife have another HSA account, and we contributed as a Family, so I can't find out where exactly the penalty comes from.

Could it be a Turbotax glitch?

[BillM223 · Accepted solution]

No, this is not a TurboTax issue.

99.999% of the time, it is caused by the data entered by the taxpayer to sometimes confusing questions. $432 divided by 6% is equal to 7,200. Since this is equal to your total contributions, this means that TurboTax believed, based on your entries, that your annual HSA contribution limit was zero (which is not likely).

Please see the following.

It is possible to accidentally indicate to TurboTax that you made excess HSA contributions when perhaps you haven't.

I understand that the following list is long, but these are all reasons that taxpayers get excess contribution messages.

If you find that your situation is not one of these cases, then please make a new post in which you indicate:

• your HDHP coverage and for which months
• your spouse's HDHP coverage and for which months
• your HSA contributions (both through your employer and directly to the HSA)
• your spouse's HSA contributions (both through your spouse's employer and directly to the HSA)
• the amount of the excess
• whether or not either of you went on Medicare and what month
• whether or not (and the amount) of carryover of excess contributions from 2021 for either of you

***main answer***

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

As you probably know, the maximum limits in 2022 are:

• $3,650 - individual with self-coverage
• $7,300 - 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 were. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2022?".

Fourth, if you had a carryover of excess contributions from 2021, then this carryover is applied to 2022 as a reduction to the 2022 HSA contribution limit, which could cause an excess condition in 2022 as well. But note: if you had an excess contribution in 2021 but cured it by withdrawing the excess in early 2022, then do NOT report an "overfunding" on your 2022 return.

Fifth, the Family limit ($7,300) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,300 to his/her HSA and the other contribute $3,650 to the other HSA – the $7,300 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,650).

[j33bell]

There was a lot more to it than just checking none for HDHP in the interview, which I did 4 times. However with that it comes up with over and over check entry for box 2 contributions that I transfered from savings to the HSA not know I shouldn't have and can't get past that and don't see any red boxes in the worksheet. What do I need to do to get this accepted to e-file?

[HopeS]

If you made a mistake in the interview for HSA, you can delete the Form and start over.

1. Log into your account; click Take Me to My Return if necessary.
   Click on My Account at the top of the screen
2. Then click on Tools and select Delete a Form
3. Scroll through the list of forms and when you find the HSA form (usually form 8889), click Delete next to it
4. It will confirm that you want to delete the form, hit yes (or continue)
5. The form will be deleted

Please review IRS Publication for additional information:

HSA

@j33bell 

[j33bell]

Didn't enter anything wrong.

[BillM223]

I don't know what your current state is. "comes up with over and over check entry for box 2 contributions that I transfered from savings to the HSA " - what does this refer to?

"don't see any red boxes in the worksheet" - worksheet? Are you in Forms mode? You are not going to fix your issue in Forms mode.

Instead, do the following: 

1. Delete all HSA data (see below)

2. review the ways you can accidentally miss-enter data (above)

3. Redo the HSA interview

***delete all HSA data***

It is possible to accidentally indicate to TurboTax that you had an HSA when perhaps you didn't. If you did not have an HSA, please do the following to remove all traces of HSA information from your return.

NOTE: if you see a question "What type of High Deductible Health Plan did you have any December 1, 2019?" (yes, 2019), be sure to answer "NONE". 

1. make a copy of your W-2(s) (if you don't have the paper copies)

2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen

*** Desktop***

3. go to View (at the top), choose Forms, and select the desired form. Note the Delete Form button at the bottom of the screen.

*** Online ***

3. go to Tax Tools (on the left), and navigate to Tools->Delete a form

4. delete form(s) 1099-SA (if one), 8889-T, and 8889-S (if one)

5. go back and re-add your W-2(s), preferably adding them manually

6. continue with your return.

[mpgerman]

Yes, this IS a TurboTax issue.  I have been dealing with this for years.  My spouse makes family contributions to his HSA, I do not contribute.  Here is how I get around the bad programming:

Under... Federal Taxes, Wages and Income, 1099-SA, HSA, MSA  Click update.

Turbo tax asks which health-realted accounts we had.  I click the HSA box for both of us, even though HE is the one who has the account.  Then it runs through a series of questions where I indicate that we were both covered by an HDHP.  If I do not click to say that I have an HSA, the program assumes that I was not covered by an HSA and never asks if I am covered by an HDHP.  It actually asked if there was a reason I was not covered.  EVERY year I have to remember this workaround, usually after wasting time in the forms window adjusting the 8889s.

Good Luck!  (I use the CD version, not sure about the online version.)

[mpgerman]

Yes, this IS a TurboTax issue. I have been dealing with this for years. My spouse makes family contributions to his HSA, I do not contribute. Here is how I get around the bad programming:

Under... Federal Taxes, Wages and Income, 1099-SA, HSA, MSA Click update.

Turbo tax asks which health-realted accounts we had. I click the HSA box for both of us, even though HE is the one who has the account. Then it runs through a series of questions where I indicate that we were both covered by an HDHP. If I do not click to say that I have an HSA, the program assumes that I was not covered by an HSA and never asks if I am covered by an HDHP. It actually asked if there was a reason I was not covered. EVERY year I have to remember this workaround, usually after wasting time in the forms window adjusting the 8889s.

Good Luck! (I use the CD version, not sure about the online version.)

[BillM223]

"The penalty comes from your $432 penalty for making excess contributions to a Health Savings Account."

Can you tell me where you see this message? Is it in the Federal Review? I don't recognize it.

Furthermore, "It actually asked if there was a reason I was not covered " is a message that comes out of the Income and Additional Tax for Failure to Maintain HDHP Coverage section (line 18) on form 8889 - this has nothing to do with excess contributions. It comes from the question, "What type of High Deductible Health Plan did [name] have on December 1, 2021 (yes, 2021)?" In your case, since you did not go yourself through the HSA interview, TurboTax thought that your HDHP coverage had lapsed when you answered Family or Self to this question.

It's not obvious (I agree) that in your case, you should have answered NONE. Just answering NONE will save you the workaround in future years.

However, as I noted, this has nothing to do with excess contributions, which makes me wonder where you saw the message that I referenced at the top.

Even better, can you make a screenshot of this message with any personal information redacted and add it to this post? I am curious to find out how you got this message.

[zw76890]

I am having the same issue. My family is all on the same HDHP plan, all year. I am the only person working, only person contributing to a single family HSA. I maxed it out last year at 7300. I am a 1099, there were no employer contributions and no W2 distributed. No matter how I enter it it says i have over-contributed by 3650. The only way I can get it to accept is to go through the steps, tell it we both have HSA accounts and contributed $3650 each under HDHP, then edit again and unclick that my wife has a HSA account to review. I have not seen the forms it produces yet.

[BillM223]

***seco***

"Turbotax shows penalty for excess contribution to HSA even though I didn't go over the IRS limits for HSA.

The penalty comes from your $432 penalty for making excess contributions to a Health Savings Account.

I've checked my HSA and my contributions are: 

Amount contributed $7,200.00  

Employer contribution $1,500.00  

Your contribution $5,700.00

Family limit $7,300.00  

Amount left $100.00"

I just created a test return, and entered this exact data, and did not receive any messages about excess contributions.

However, in rereading your post, I noticed "Amount left $100". This is not something that TurboTax would say; however, it is the sort of thing that your HSA custodian might print on their website. Is it possible that all this text in the Courier font came from your HSA custodian?

***j33bell***

"Didn't enter anything wrong."

How do you know? Do you still have a problem?

***mpgerman***

I confused the initial post about excess contributions with your later post about having to claim that you both had to mark that you had HSAs.

In your case, I said, ""It actually asked if there was a reason I was not covered " is a message that comes out of the Income and Additional Tax for Failure to Maintain HDHP Coverage section (line 18) on form 8889 - this has nothing to do with excess contributions. It comes from the question, "What type of High Deductible Health Plan did [name] have on December 1, 2021 (yes, 2021)?" In your case, since you did not go yourself through the HSA interview, TurboTax thought that your HDHP coverage had lapsed when you answered Family or Self to this question.

It's not obvious (I agree) that in your case, you should have answered NONE. Just answering NONE will save you the workaround in future years."

My response about 99.99999% of the time the data was entered in error by the taxpayer was in reference to the original post about excess contributions - excess contributions are almost always caused by the user. 

However, your concern is about something that is quite different. Your concern is about finding yourself in Part III of the 8889 "Additional Tax for Failure to Maintain HDHP Coverage" - line 18. I agree it is not obvious that the question that trips you up ("What type of High Deductible Health Plan did [name] have on December 1, 2021?") does not apply to most taxpayers. Thus when you answer the question with Family or Self, you trigger the last-month rule processing, and you are routed through an interview of totally different questions.

Yes, your workaround does work, but it will be simpler to just answer "NONE" to that question.

***zw76890***

I just created a test return with your data, and there was no excess.

From your description, the most likely explanation is that you entered that you were covered by a Self-only HDHP policy, not a Family HDHP policy. I imagine that you think that this is unlikely, but this is exactly how the program would react if you did so.

Would you please recheck the screen where you indicate that you were covered by a Family policy for every month?

***********

Please do not piggy back onto other posts when you have something to ask. That is, please do not assume that your issue is the same as someone else's, but make a new and fresh post.

@seco 

@zw76890 

@j33bell 

@mpgerman 

[zw76890]

UPDATE that may help the OP as well.

Everyone was right, the algorithm was stuck thinking my wife had a HSA as well because at one point I indicated that she was covered by a HDHP plan (she is under our family one, I am only one working). In order to stop the madness, I absolutely cleared both HSA spots (federal and other sections), saying we both didnt have one, and starting over. I said my wife was never covered by a HDHP plan and only I contributed 7,300 and it worked this time. So I learned to "clear the algorithm" and completely start over, clearing both HSA sections.

[WL47]

@mpgerman Thank you for this! I did this workaround and it fixed my issue because I was not exceeding HSA contributions (I have a family HDHP and it was treating me as a single HDHP and penalizing me). After I did the workaround, I even went to TaxAct and input our W2s and it came up with the same amounts for taxes due/refund as TurboTax dollar for dollar and I didnt even have to do this crazy workaround on TaxAct. TurboTax needs to fix this issue. Now I wonder if my previous years taxes have been wrong on TurboTax and need to be amended because I never paid attention to this until now.

[BillM223]

If in previous years, you did not get a message about excess HSA contributions, then you don't need to worry about your prior returns.

One thing that may confused taxpayers is that each spouse can have an HSA; that is, people don't share an HSA. So if you have an HSA and your spouse doesn't, then just report it that way. This is different from the HDHP coverage wherein both spouses can be covered by the same Family HDHP policy. 

If you don't enter that your spouse had an HSA (because he/she really didn't), then you will never be asked if your spouse has HDHP coverage. This does cause another issue, wherein TurboTax will mistakenly assume that your spouse's coverage has lapsed.

That part of the interview could be phrased better, but it has nothing to do with excess contributions.

@WL47