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@dmertz , According to the IRS notice, I did overcontribute, and I can only attribute it to the amendment of my 2021 return deducting my entire $2,900 contribution instead of $1,000. I did call IRS last year about this, but I didn't jot down notes so I am vague now about how it exactly it came about.
Regardless of how it came about, I just wanted to know how to remediate this. My path-forward is to reduce my 2024 contributions by that excess amount. So my original questions were:
1) If I do this reduction for 2024 contributions, will that resolve the excess contribution in 2019.
2) What other forms do I need to correct?
3) Do I need to pay taxes on whatever earnings for that excess contribution (as my HSA is invested), even though, the $1,900 was not really contributed, rather taken as extra HSA deduction (so it wasn't really invested).
You still have not explained how you have an excess contribution. You have only stated your conclusion, correct or not, that you made an excess contribution. If no more than $3,600 was deposited into your HSA as contributions for 2021, you have no excess contribution for 2021.
What is shown in boxes 2 and 3 of your 2021 and 2022 Forms 5498? If you don't have these forms in hand, they are available from the IRS in your Wage and Income transcripts for these years.
@raom1024 wrote:
Thank you @dmertz for the clarifying questions.
I have actually been HSA eligible since 2020, continuously till the present. My HDHP plan was for self only.
For 2021, I was under 55, so my contribution limits was $3,600 but my employer contributes $700 so my employee contribution was $2,900.
I am beginning to have a suspicion. The way the tax law works, all contributions made by payroll deduction are treated as employer contributions. Essentially, you agree to a salary reduction, and your employer makes a contribution equal to the reduced salary (plus any match). These are recorded on your W-2 in box 12 with a code W. (There can be other items in box 12 with different codes, we are focusing only on code W.)
Later in the program, when asked about additional contributions, you only enter direct contributions you made to the HSA bank out of pocket, and not through payroll. Adding your workplace contributions as if they were additional out of pocket contributions can result in you taking an illegal tax deduction and also a false report of excess contributions.
Your first mistake may have been amending to claim a deduction that it sounds like you shouldn't have taken. Your second mistake was paying a penalty that you probably didn't really owe without doing a deeper dive into what the problem was. It is now possible that, depending on what you did and what you claimed, you have claimed excess (unallowed) deductions and owe back taxes with interest, or you paid a penalty you don't owe, or both, and you may need to file several years of amended returns (including second-amended returns, which is tricky).
Depending on your comfort level, you may be able to do this yourself or you may need professional assistance.
To start with, you need to look at your original 2021 return, your as-amended 2021 return, your 2022 return, and the IRS letter to see what was really being claimed and what you paid. You should also get your full tax return transcripts from the IRS to see what they have on file for you and what adjustments they have made for you.
@Opus 17 Thanks much for the response.
Yes, many mistakes committed along the way. Should have been TT customer much earlier.
At this point, I just want to move on, if IRS considered it excess contribution, so be it. If paying excise tax and reducing the 2024 contributions would resolve it, then I'm ok with that.
Thanks for the link on the transcripts. That's really useful reconciling my records with what are on my file.
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