I have around 500$ of Excess Contribution in my HSA account from 2016. I am not eligible for an HSA account anymore ( Since Nov 2016) . I requested my HSA Bank to return that Money as excess Contribution. They told me that they will send me an updated 1099 next year ( would be for 2017) . My Question is when would i be charged the income tax on the Excess Contribution ? 2016 RETURN or 2017 RETURN.
While filing the form for Excess Contribution Refund , I mentioned 501$ rather than the 500$. Would these cause any complications ? Turbotax is not letting me enter $501 as excess withdrawal , as i had to Withdraw only $500.
When you indicate to TurboTax that you want to withdraw the excess contribution before the filing deadline, then TurboTax will add the excess contribution to "Other Income", so it will be taxed in 2016 automatically.
At some point, then the HSA plan administrator will send you the 1099-SA reflecting the excess contribution (which you won't pay tax on in 2017 because you already did in 2016), the earnings on the excess as computed by the plan administrator, and a distribution code of "2" which tells TurboTax to tax only the earnings in 2017.
The reason for this is that while your excess contribution was in the HSA, it presumably earned some small amount of money before you withdrew it. Only the plan administrator can determine how much the earnings were.
By Typo Mistake , I asked the HSA Bank to treat 981$ as Excess Contribution ( and not 980$). TT is not letting me enter that amount as amount withdrawn. What should i do :(
I would enter the 980 into TurboTax and file the return. You may ask the bank if they will treat the $1 as a "mistaken distribution" but they are not required to. Worst case, you'll pay tax on the $1 and a 20% penalty (on the $1, so 20 cents) in 2017 if and when this ever catches up with you. Just keep good documentation.
You have been Very Helpful . My Last Question : I am working to Fix my Typo ( I am not sure if this happens or not , or when ) and If i file my taxes now in such a way where i don't agree to withdraw the excess contribution and pay the tax on $980 and the 59$ ( 6% penalty) . And then later suppose on April 5 , the bank fixes the issue , and refunds me the money . I should be able declare that refund of excess contribution in 2017 return ? as I don't want to go through the hassle of filing the amended return for $59.
I am in a similar situation. We had excess contribution for year 2016 which we already withdrawn in 2017 before filing taxes. My question is my Plan administration supposed to generate revised 1099-sa for 2016 with excess contribution details or it will be mentioned in 2017 1099-sa? Please help.