Cannot Withdraw Excess HSA Contribution Before April 15

[sdp73]

I finished 2023 with an excess contribution to my HSA due to an error made by my employer. This excess contribution carried over to 2024, and during the HSA interview I was asked if I will either: (1) Withdraw all of the excess contribution before 15 April 25; (2) Withdraw a portion of this excess contribution before 15 April 25 or (3) Make no withdraw of this excess contribution by 15 April 25 (but for the latter I'll be taxed at 6% of this excess contribution).

Regardless of the option I choose, an error is created because Form 8889 expects me to declare that I had an HDHP when I've already told TTX that I did not. This issue has been described by many others on this TTX community.

To resolve this form 8889 issue, I thought I'd respond to the HSA interview with option 1, which is to state that I will withdraw the HSA excess amount. But when I do so TTX throws an error, stating that it's too late to withdraw this amount (apparently I was supposed to have made this withdraw prior to the end of 2024, so why was it offered as an option).

So now I'm stuck in a loop where I cannot clear the error(s) in form 8889 no matter how I respond to the HSA excess contribution withdraw questions in the interview.

This scenario is very similar to that which others have reported with form 8889 when HSA excess contributions exist.

Based on recommendations from the community, I deleted form 1099-SA and went through the HSA interview again. But after doing so I have the same issue as described above. Not only that,  TTX somehow auto-populated the HSA amount from form1099-SA, so my attempt to start all over entering HSA information was completely unsuccessful.

Questions:

(A) Why does TTX give me the option to withdraw the HSA excess contribution amount by 15 April 25, but if this option is selected TTX tells me it's too late to make this withdraw?

(B) If I choose to do nothing with the HSA excess contribution (and accept the 6% penalty), why doesn't TTX simply calculate the 6% penalty and allow me to move on rather than creating a host of errors in Form 8889?

(C) Why does it seem that I cannot completely remove the info from 1099-SA and start the HSA documentation process from scratch? There's no Code W in box 12 of my W-2 so I have no idea where the HSA account total is coming from when I deleted the 1099-SA form from TTX.

Thanks,

Scott

[BillM223]

"(A) Why does TTX give me the option to withdraw the HSA excess contribution amount by 15 April 25, but if this option is selected TTX tells me it's too late to make this withdraw?"

TurboTax does this because you may not only have an excess that is carried over, but you also may have an excess originating from this year. You can withdraw the amount of the excess that originated this year, but not the excess which originated in a previous year.

In the year in which the first excess occurred, you were given the option to withdraw the excess by the due date of the return. If you don't, then the excess gets carried over, and your options to stop the carryover change.

"(B) If I choose to do nothing with the HSA excess contribution (and accept the 6% penalty), why doesn't TTX simply calculate the 6% penalty and allow me to move on rather than creating a host of errors in Form 8889?"

This is what happened in the year the excess started. What TurboTax can't do is let you withdraw excess belonging to previous years. Of course, this is not choice of TurboTax but the dictates of Congress and the IRS.

The only issue that follows is that if you didn't have HDHP coverage in the current year (or had a conflict), it sometimes happens that in the Review, TurboTax asks you if you had Self or Family and won't let you continue until you say one or the other when you didn't have either. Just answer Self, because it won't matter since you said that you did not have HDHP coverage (so form 8889 is correct - this is just a workaround to get you beyond the Review).

"(C) Why does it seem that I cannot completely remove the info from 1099-SA and start the HSA documentation process from scratch? There's no Code W in box 12 of my W-2 so I have no idea where the HSA account total is coming from when I deleted the 1099-SA form from TTX."

If you had a carryover from the previous year of HSA contributions, this will trigger the HSA processing. That will happen every year until one of two things happens:

1. You have HDHP coverage in a future year with no conflict. The carryover will be placed on line 2 (form 8889) as a personal contribution). If you don't overcontribute in this year, then the carryover will be "used up" and finished with.

2. You take a distribution (i.e., call the HSA custodian and ask them to send you some money), and don't spend it on medical expenses. Then, when you get the 1099-SA, enter it into TurboTax and say that it was NOT for medical expenses. This will cause the distribution amount to be added to your Other Income, AND you will be penalized 20% of the distribution...but at least the carryover will finally be over.