2023 HSA excess contribution - withdrawn in 2024

[ayushkj]

Hi,

In 2023, I contributed to an HSA (the max amount of $3,850) via payroll, and it shows up in W-2 Box 12. In Jan 2024, i realized I am probably not eligible, as my spouse had a FSA account for some months in 2023. I filed the withdrawal of excess contribution form (with HSA provider), and received the funds in my bank account in Jan 2024.

Two questions:

1) I am now trying to do the 2023 tax filing, and unable to tell TurboTax desktop that there was excess contribution in 2023 (which needs to be taxed). When I go through the interview, there is no option to tell it I'm not eligible due to spouse's FSA account. How do I do this ?

2) I believe the 1099-SA will be generated for 2024 later, so I will have to use that in 2024's tax filing to inform about any interest/gains, as reported in it. Is that correct ?

For clarity, our setup:

- For all of 2023, I had (self) HDHP insurance, and my spouse had her PPO + Cobra insurance, as well as FSA account (for some months).

- I contributed the $3,850 amount to my (self) HSA account.

[Mike9241 · Accepted solution]

please clarify what do you mean that she had an FSA for some months? An FSA is an annual plan but can be on a fiscal year. 

even if the PPO was not a high-deductible health plan this does not disqualify you from making an HSA contribution unless it also covered you. The same is true for Cobra coverage.

As to the FSA we need more details. This is because Cobra coverage would allow her to use any remaining FSA funds (see below) .  the concern is that perhaps there was no disqualifying coverage for some months which would make some of the withdrawal a prohibited transaction subject to penalties.

if you indeed had disqualifying coverage for the whole year the trick is to specify you had no (none) HDHP coverage for every month of the year. Then later it will ask about excess withdrawal after year end for which you would enter 3850

1. Linked to Your Job: Your FSA is closely tied to your job. When you leave your job, your ability to use the FSA ends. However, there’s an exception: if you’re eligible for COBRA continuation coverage for your FSA, you may continue using it even after leaving your job. 

2. Unused Funds: Any unused FSA funds typically go back to your employer after you quit or lose your job. Unlike Health Savings Accounts (HSAs), FSAs operate on a “use it or lose it” basis. However, if you’re eligible for COBRA continuation coverage, you can still request reimbursement for remaining FSA funds.

[dmertz]

For the months that you were covered by your spouse's FSA you must select None as the type of qualifying coverage that you had.

[ayushkj]

Thanks @Mike9241 and @dmertz for your replies!

My wife had an FSA (in which i was eligible to file claims). This is the reason why I believe I'm not eligible to contribute to the HSA.

I believe her FSA eligibility ended with the employment, i.e., any medical expenses after that could not be claimed. We did file claims for prior expenses and were able to use all the funds contributed during the year.

The responses indicate I need to tell TurboTax that I had no HDHP coverage for every month of the year. However, I did have a HDHP throughout the year, the limitation is that I cannot contribute to HSA. How is this scenario represented in TurboTax (and the generated tax forms) ?

[BillM223]

Any month that you have conflicting coverage (in this case, the FSA), you indicate NONE to mean that you did not have HDHP coverage without any conflicting coverage. Yes, it is slightly confusing, but in this case, answer "NONE" because of the conflict.

This is how this scenario is handled in TurboTax.

This will trigger the excess HSA contribution message, where you can indicate what amount of the excess you will withdraw before the due date of the return.