Excess HSA Contributions

[efeng1052]

I have One W-2 with box 12 W, which is $8678.74 and I have another W-2 with box 12 W, which is $1435.64 and I have Form 1099-SA with box 1, gross distribution is $1000.11 and box 2, earnings on excess cont. is $0.11 and box 3, distribution code is 2, I am over 55 years old.  Why TurboTax is saying I have excess contribution $564 ?

My calculation is as follows:

1. Total Contributions (From W-2s)

The amount in Box 12, Code W includes both your pre-tax payroll contributions and any contributions your employer made on your behalf.

• W-2 #1: $8,678.74

• W-2 #2: $1,435.64

• Gross Total Contribution: $10,114.38

2. The 1099-SA Correction (Code 2)

Your Form 1099-SA with Distribution Code 2 (in Box 3) indicates that you identified an over-contribution and had the bank return it to you to avoid a penalty.

• Box 1 (Gross Distribution): $1,000.11 (This is the total amount sent back to you).

• Box 2 (Earnings): $0.11 (This is the interest that $1,000 earned while in the account).

• Principal Returned: $1,000.00

My Net 2025 Contribution: $10,114.38 - $1,000.00 =$9,114.38, which is less than annual contribution limit $9550. So there is no excess HSA contributions, because I already distributed $1000.

Am I correct ?

Please advise me, thank you!

[BillM223]

No, not correct. 

The code W amounts indicate that the HSA contributions were made through your employer(s). Not necessarily by your employer(s), but through them.

As soon as TurboTax detects an excess (sometime in the HSA interview, when it confirms what your HDHP coverage is), TurboTax adds the excess amount automatically to Other Income on your 2025 return. Go check this, on line 8f on Schedule 1 (1040).

TurboTax does not (and indeed, can not) compare a 1099-SA with distribution code of '2' to the current year's excess because that form will normally be entered for an excess in 2024, i.e., the previous year. Besides, there is no date field on the form (the big 2025 is to show what year the IRS printed this form).

So TurboTax will report your excess, which is correct. The only issue is (1) are you withdrawing all of the excess before April 15th, (2) some of the excess by that date, or (3) none of the excess, and just carrying over the excess to the next year?

If you had wanted to avoid this whole issue of seeing the excess message, you would have needed to have one of your employers reduce the size of the code W amount, which they probably would not be willing to do, unless they may the error.

[Mike9241]

That is exactly correct. The $564 is taxable income. 

Either your line 1 wages of your W-2s were reduced by part or all of the excess (making that part of the excess withdrawn taxable income), or part or all of the amount withdrawn was the employer match, which was originally tax-free but now becomes taxable income because you took it out. 

you do have the optio, of making a direct contribution to your HSA of 

since you removed the excess, you must tell TurboTax (despite the 1099-SA) that you took out the $564 excess by 4/15/2026 to avoid the 6% penaly as computed on Form 5329. 

[efeng1052]

I am confused with your explanation about 1099-SA. I  did request excess HSA distribution in 2025 and later I received a $1000.11 check from HSA custodian account. So at the year end, I received 1098-SA with box 3 code 2 for 2025 not for year 2024. There is an instruction in 1099-SA. Code 2 reports any excess contribution corrected that were processed against your account.

[efeng1052]

Thank you so much, BillM223.

According to your reply, 

"If you had wanted to avoid this whole issue of seeing the excess message, you would have needed to have one of your employers reduce the size of the code W amount, which they probably would not be willing to do, unless they may the error. "

I assume the first employer is willing to help me. They can reduce Box12 W amount from 8678.74 to 7678.74 and the same time Box 1 amount of W-2, which is wage, increased by 1000. With this correction, this should any issues. Am I correct ? Thank you so much! 

[BillM223]

Yes, you did, but that does not satisfy the IRS's way to withdrawing excess HSA contributions.

Listen, the issue if this. When the W-2 is prepared by the employer, the code W amount is removed from Wages in boxes 1, 3, and 5. This is the benefit of HSA contributions through your employer - you don't pay tax on them because they were never in your income in the first.

But, unless your employer issued you as corrected W-2 with the Wages number adjusted (they have no reason to in most cases), the Wages that carry to your return are too small, because the contributions that are excess have to be added back to income.

So how does this happen? You go through the HSA interview and TurboTax realizes that you have an excess. Immediately, the excess is added back to Other Income on line 8f on Schedule 1 (1040), so now your wages are correct.

The whole point of withdrawing the excess by the due date of the return is to avoid the 6% penalty when you carry over the excess to the next year. If the excess contributions were made through your employer, then you still have to pay income tax on the excess.

P.S. if you had an excess in 2024 but withdrew it in a timely manner (whether in late 2024 or early 2025), then, yes, the 1099-SA would say "2025" on the form and you would enter it on your 2025 tax return.

[efeng1052]

Thank you very much for your reply.BillM223

I still have doubts on TurboTax calculations. How come I still have $564?  Because I already distributed $1000, which shows in 1099-SA with Box3 code 2. Why TurboTax didn't deduct $1000 for the employer's total HSA contributions?  So the net HSA contribution is $10114.38-$1000=$9100.38 which is less than the limit amount $9550.