Excess HSA Contribution Incorrect

[docwells]

I keep getting told we have an excess contribution to HSA. I wanted to see how to fix issue. 

I am covered under my wife's family high deductible insurance plan. The contributions to her HSA are done by her employer and are below the limits of the maximum contribution. I input that information. I am not duplicating the employer contribution when I am asked about contributions to the account.

Now I have a left over HSA from a former job and I input that information also into Turbo Tax.  I do not make any contributions to that account. Is this throwing the calculations off?

Just at a lost for solution.

Thanks

[KurtL1]

When you entered the HSA contribution carried over from your prior job, the program picked that up as a current year contribution. This probably triggered the excess HSA error message.

The software does not keep up with the balance in your HSA accounts. It only looks at the current year contributions and disbursements.

[docwells]

I went into the software and unchecked that I had a HSA. It still said we had an excess contribution. Do I need to take my HSA completely out of the software to see if it will correct itself?

[VictoriaD75]

Enter contributions for the tax year only. While you can still use an HSA from a prior job, if you did not make any contributions in 2019, that does not need to be entered. You need not report prior year balances.

The most common error I see when entering HSA contributions are double reporting. Typically, these payroll contributions are reported on your W-2 in box 12 with code W. If that is the case, no other contribution needs to be reported in the software.

Under the Deductions & Credits menu, confirm the following:

• Expand the menu for Medical
• Click Start/Revisit next to HSA, MSA Contributions
• Confirm the account ownership and click Continue
• Continue in through the screens until you reach Let's enter your HSA contributions
• Stop here. If all of your contributions were through payroll deductions and reported on your W2, do not enter anything on this screen. If that is the case, either leave the box empty or type $0 in the box next to Any contributions you personally made

If it turns out you did have an excess contribution, the following applies. Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the account.

You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.

• You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
• You withdraw any income earned on the withdrawn contributions and include the earnings in "Other income" on your tax return for the year you withdraw the contributions and earnings.

Pub 969 Tax-Favored Health Plans

[Mamaw810]

The excess contribution continues.  The allowable amount for married jointly is 7000 and my contributions are less than the maximum.  My distributions from the account were almost equal to contributions, thus for a full year the balance is less than 1000$.  

The only input is the contributions I made per the Box 12 W and yet TurboTax tells me I have made excess contributions.  I have NOT made excess contributions, and yet TT says I have.   

Where is the information coming from that shows excess?? 

[BillM223]

It is possible to accidentally indicate to TurboTax that you made excess HSA contributions when perhaps you haven't.

I understand that the following list is long, but these are all reasons that taxpayers get excess contribution messages.

If you find that your situation is not one of these cases, then please make a new post in which you indicate:

• your HDHP coverage and for how many months
• your spouse's HDHP coverage and for how many months
• your HSA contributions (both through your employer and directly to the HSA)
• your spouse's HSA contributions (both through your spouse's employer and directly to the HSA)
• the amount of the excess
• whether or not either of you went on Medicare and what month
• whether or not (and the amount) of carryover of excess contributions from 2018 for either of you

***main answer***

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

As you probably know, the maximum limits in 2019 are:

• $3,500 - individual with self-coverage
• $7,000 - 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 HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2019?".

Fourth, if you had a carryover of excess contributions from 2018, then this carryover is applied to 2019 as a personal contribution, which could cause an excess condition in 2019 as well. But note: if you had an excess contribution in 2018 but cured it by withdrawing the excess in early 2018, then do NOT report an "overfunding" on your 2018 return.

Fifth, the Family limit ($7,000) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,000 to his/her HSA and the other contribute $3,500 to the other HSA – the $7,000  limit applies to the aggregate of all HSA contributions credited to the family.