HSA Excess Contributions - Why?

yoturyo — Mon, 03 Mar 2025 18:00:59 GMT

I started working a new job in July and signed up for a new family HSA plan. I didn't have an HSA plan previously. The total contributions from July - December are $7550. I know based on the last month rule that as long as I'm in the HSA in Dec. 2025, I can contribute that full amount tax free.

Why is it telling me I have an excess contribution of $6,800?

Re: HSA Excess Contributions - Why?

BillM223 — Mon, 03 Mar 2025 18:08:46 GMT

1. Did you declare that you could be claimed as a dependent in someone else's return? If so, you cannot make contributions to an HSA.

2. Actually, the rule is that as long as you are under HDHP coverage in December 1st, you can use the full annual HSA contribution limit.

3. Did you enter the HSA interview and go all the way to the end?

There are number of reasons why you might appear to have made excess HSA contributions. Please read the following:

Your annual HSA contribution limit is what determines if you made an overcontribution or not.

The annual HSA contribution is dependent on the base amount, insurance status (Family versus Self-only), how many months you were covered by an HDHP policy, whether or not you carried over excess contributions from the previous year (this reduces the current year's limit), and other less common situations.

Generally, if you made contributions (this includes what your employer contributed) that appear to be clearly under the limit, and the entire amount of the contributions is considered by TurboTax to be in excess, then the cause is that the taxpayer has not gone through the HSA interview in TurboTax, which allows TurboTax to calculate the HSA limit for the current year.

Note that you would owe a 6% excise tax on the carryover of the excess contribution ONLY if you do not withdraw the excess before April 15, 2025. Therefore, if you really made an excess contribution, you can "fix" this by contacting the HSA custodian to withdraw the excess that TurboTax indicates. Do this before April 15th.

But I would try to address the excess issue first, because it is easy to accidently indicate to TurboTax that you made excess contributions by mis-entries or lack of entries.

Here is an updated list of possibilities:

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 had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2024?".

Fourth, if you had a carryover of excess contributions from 2023, then this carryover is applied to 2024 as a reduction to the 2024 HSA contribution limit, which could cause an excess condition in 2024 as well. But note: if you had an excess contribution in 2023 but cured it by withdrawing the excess in early 2023, then do NOT report an "overfunding" on your 2024 return.

Fifth, the Family limit ($8,300) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $8,300 to his/her HSA and the other contribute $4,150 to the other HSA – the $8,300 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $4,150).

Re: HSA Excess Contributions - Why?

yoturyo — Mon, 03 Mar 2025 18:23:53 GMT

After going through the "interview" more closely, I found my mistake, which was previously entering a duplicate $7550 for "personally made contributions". When I revisited subsequently, the text was slightly greyed out making me think it was just auto-copied from the box 12 entry.

Since my employer makes a contribution on my behalf, I thought, "personally made contributions" was what I contributed personally, via my paycheck, but I now realize this is not the case. In retrospect, the employer contribution and my contribution are not delineated anywhere that I can tell, so I guess the IRS doesn't care whether it came from ie employer or me.

Re: HSA Excess Contributions - Why?

KrisD15 — Mon, 03 Mar 2025 18:39:13 GMT

Correct, the TurboTax program takes the amount from your W-2 Box 12 coded W as HSA contributions. It does not matter if they were employer or employee contributions or a combination of both.

Next, only if you ALSO made direct contributions to your HSA (not made through your workplace) would you enter those additional contributions as well.

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HSA Excess Contributions - Why?

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