TurboTax cannot recognize HSA contribution when contribution is for previous year

[johnbech7]

TurboTax cannot recognize HSA contribution when contribution is for previous year. It ignores or does not know how to treat contributions for previous years. It is limited to only the current year.

This does not reflect the current tax law via the IRS which allows contributions for the previous year OR the current year up to the tax deadline (typically Apr. 15). Ditto, my bank's 5498SA forms distinguishes between contributions I make for either the previous year OR the current year. Only TurboTax doesn’t recognize this.

The consequence is that, when I enter the contribution I made in 2021 for 2020, TurboTax treats the contribution as 2021 only. This results in a $2000 penalty for me since I did not have a HDHP (High Deductible Health Plan) in 2021; only in 2020. And TurboTax did the same thing to me last year.

How can I correct this oversight in TurboTax?

[PattiF]

The tax returns for the year 2021 are being prepared now. You can make an HSA contribution in 2022 for tax year 2021 by April 15, 2022.  The contribution that you made in 2021 for tax year 2020 would be entered on your 2020 tax return.

If you’re eligible to participate in an HSA, you can contribute right up until April 15, 2021, the expected deadline for filing and paying your 2020 federal income taxes (unless the deadlines changes, as it did in 2020 for 2019 returns). 

From the IRS Publication 969

You can make contributions to your HSA for 2021 until April 15, 2022. If you fail to be an eligible individual during 2021, you can still make contributions until April 15, 2022, for the months you were an eligible individual.

[johnbech7]

Thanks, PattiF. I know you're trying to help so you probably thought you'd start with the basics. However, I already knew all you wrote and could have written myself. I kind of did but not as much since I wasn't trying to educate someone on the way things are supposed to work. Instead, I focused on the problem that TurboTax has in implementing. 

Thanks, anyway! 

[johnbech7 · Accepted solution]

Here is the problem and the solution. 

ROOT PROBLEM

When TurboTax asks if you contributed any money to an HSA in 2021, it only treats that as a binary question. It's either yes or no. That is incorrect. There are actually three possible answers: 

1. Yes, I did contribute in 2021 for the 2021 tax year

2. Yes, I did contribute in 2021 but for the 2020 tax year.

3. No, I did not contribute in 2021.

It's option two that is misleading.

SOLUTION If you contributed in 2021 for 2020, you need to answer No, you did not. TurboTax doesn't recognize this answer or allow for this option (a flaw in their process/programming) so you have to lie in order to comply with the IRS and not mess up your taxes. When I answered yes, I was penalized apprx $2k since I did not have a qualifying HDHP insurance plan in 2021.

Our financial institutions recognize this option and they report the year that we contributed but notes if it's for the year we are filing (2021 in this instance) or if we contributed in 2021 but it was for 2020. NOTE: IRS allows for contributions for the previous year up until tax filiing day, typically Apr 15 but this year, Apr 18. Obviously Intuit knows this but failed to account for it in their TurboTax software. 

I've been using TurboTax since the 1990s are they are typicall ok but this is the second flaw I've discovered. I didn't engage this forum 18 yrs ago when TurboTax misclassified my withdrawal for a home downpayment from a 401k as not allowed and penalized me. I went to view the actual form and forced the correct info into it. Sorry it took so long for me to report. Things were hectic 18 yrs ago. Hopefully, Intuit has long since corrected. 

Hope this info on the HSA flaw helps someone else.