Why doesn't our gross HSA distribution subtract from our total contributions?

[amydriscoll]

Turbo Tax is concluding that we haven't spent down our HSA and we have.

[BillM223]

I am not sure what you are trying to say, but this is how HSAs work.

Contributions:

Your employer can make contributions to your HSA or you can through payroll deduction. The amount (together) is reported on your W-2 in box 12 with a code of W. This code W amount is removed from Wages in boxes 1, 3, and 5 before your W-2 is printed. This is the tax benefit of this kind of contribution - the amount is never reported as part of your income at all.

You can also make direct contributions to your HSA. Any contributions made this way are reported on line 13 of Schedule 1 (1040) as an adjustment to gross income.

Your contributions are limited to an annual amount determined by the type of HDHP policy you have times the number of months you have it (and no other conflicting insurance). Any amount more than this annual HSA contribution limit is considered "excess" contributions. NOTE: your excess contributions have nothing to with how much you have spent out of your HSA. HSAs are not like FSAs in which you have spend all the money contributed for the year or lose it. Instead, the amount in the HSA rides from year to year until you spend it.

Am I right in guessing that TurboTax is telling you that you have excess contributions and you don't see how since you have spent nearly everything in your HSA? If so, as you can see from the previous discussion, the excess is due to contributing more than the annual HSA contribution limit for you.

If this does not make sense, then come back and tell us what kind of HDHP policy you have, which months that you had it, if you are 55 or older, and how much was contributed to your HSA by you, your employer, your spouse, or anyone one else eligible on the planet.

[amydriscoll]

Thanks for the response. To clarify, here's what's happening: my husband's W2, box 12b lists HSA contributions (W) as 2999.88. My husband did not make any additional contributions. We have used 2735.15 of that amount, but Turbo Tax is not deducting the 2735.15 from the 2999.88. TT says the 2999.88 is excess contributions. I can't figure out any way to clarify that we have used these funds and they should be deducted from the contributed amount.

[BillM223]

First, you do not (and therefore TurboTax does not) track your HSA totals on your tax return. Although your HSA contributions and distributions are reported on form 8889, your tax return does not know (or care) what the amount is in your HSA at any given time. How could it, because the money in the HSA is earning interest and dividends and whatever, and this is not ordinarily reported on your return.

Again, as I noted above, an excess contribution is the result of contributing to your HSA more than your annual HSA contribution limit - it has nothing to do with how much you may have spent out of the HSA. HSAs are not done the same way that old FSAs were done.

By your description, I am inclined to believe that you did not finish the HSA interview in TurboTax. It sounds like you did not tell TurboTax if your spouse had HDHP coverage and for how many months. Properly answering the questions about HDHP coverage allows TurboTax to calculate your annual HSA contribution limit. Since you say that the excess is the entire $2,299.88, it seems that your calculated contribution limit is 0 (zero), which suggests that the questions on HDHP coverage were either not answered or were not answered correctly. 

Be sure to go all the way through the HSA interview, and if you have any additional questions, please come back and ask them.