Solved: Excess contribution penalty is shown on form 5329 when HSA self is checked on form 8889. How do I remove the penalty ? Joint taxpayers both have an HSA self checked.
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Excess contribution penalty is shown on form 5329 when HSA self is checked on form 8889. How do I remove the penalty ? Joint taxpayers both have an HSA self checked.

Excess contribution penalty is shown on form 5329 when  HSA self is checked on  form 8889.  How do I remove the penalty being charged?  Joint taxpayers both have an HSA self checked.  They contributed within the HSA limits but are being taxed for excess contributions when there are none.  

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Level 13

Excess contribution penalty is shown on form 5329 when HSA self is checked on form 8889. How do I remove the penalty ? Joint taxpayers both have an HSA self checked.

Did either taxpayer have Family coverage in the HDHP? If so, the IRS not only considers both taxpayers to be in Family coverage - despite their Self-only coverage. In this case, the HSA contribution limit is shared between the married taxpayers (i.e., $6,750 instead of two times $3,400). 

Did either taxpayer have an excess contribution that carried over from 2016? The excess contribution from a previous year (called "overfunded" in TurboTax) is applied to the current year, so you have to reduce your current year contributions to avoid perpetuating the excess.

Did you make a common data entry error that caused TurboTax to think that you had an excess when you didn't?

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

As you probably know, the maximum limits in 2017 are:

  • $3,400 - individual with self-coverage
  • $6,750 - individual with family coverage
  • If the HSA owner is 55 or older, then you add $1,000 to these amounts.

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced

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 (see screenshot below). 

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 the HSA all 12 months, then the annual contribution limit is reduced on a per month ratio. 

Fourth , if you had a carryover of excess contributions from 2016, then this carryover is applied to 2017 as a personal contribution, which could cause an excess condition in 2017 as well. But note: if you had an excess contribution in 2016 but cured it by withdrawing the excess in early 2017, then do NOT report an "overfunding" on your 2017 return.

View solution in original post

2 Replies
Level 13

Excess contribution penalty is shown on form 5329 when HSA self is checked on form 8889. How do I remove the penalty ? Joint taxpayers both have an HSA self checked.

Did either taxpayer have Family coverage in the HDHP? If so, the IRS not only considers both taxpayers to be in Family coverage - despite their Self-only coverage. In this case, the HSA contribution limit is shared between the married taxpayers (i.e., $6,750 instead of two times $3,400). 

Did either taxpayer have an excess contribution that carried over from 2016? The excess contribution from a previous year (called "overfunded" in TurboTax) is applied to the current year, so you have to reduce your current year contributions to avoid perpetuating the excess.

Did you make a common data entry error that caused TurboTax to think that you had an excess when you didn't?

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

As you probably know, the maximum limits in 2017 are:

  • $3,400 - individual with self-coverage
  • $6,750 - individual with family coverage
  • If the HSA owner is 55 or older, then you add $1,000 to these amounts.

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced

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 (see screenshot below). 

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 the HSA all 12 months, then the annual contribution limit is reduced on a per month ratio. 

Fourth , if you had a carryover of excess contributions from 2016, then this carryover is applied to 2017 as a personal contribution, which could cause an excess condition in 2017 as well. But note: if you had an excess contribution in 2016 but cured it by withdrawing the excess in early 2017, then do NOT report an "overfunding" on your 2017 return.

View solution in original post

New Member

Excess contribution penalty is shown on form 5329 when HSA self is checked on form 8889. How do I remove the penalty ? Joint taxpayers both have an HSA self checked.

Thanks for the responses to this.   I had made a miscalculation that caused the overages when there were really none.
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