HSA logic is wrong. "Did Joe inherit this HSA? If you inherited this HSA from a spouse, answer No." It should say "If you inherited this HSA from a spouse, answer YES"

[VolvoGirl]

I remember reading about this earlier.  It’s right.  I think because a spouse doesn’t count.  I’m looking for the prior posts.

[djhallturbo]

There appear to be two parts to the presentation of the question:
    (1) Did you inherit this HSA? (yes or no)?
         In other words, did you inherit this HSA from someone other than your spouse? Answer Yes.
    (2) If you inherited this HSA from your spouse, answer No.
        If you inherited this HSA from your spouse it (apparently) doesn't count as an inherited HSA.
--- Disclaimer: I am not a tax professional.

[VolvoGirl · Accepted solution]

Finally found a post with an answer.....

This is a confusing way that TurboTax reminds you that if you inherited an HSA from your spouse, it's now an HSA owned by you, not an inherited IRA, and you must answer No when asked if it's an inherited IRA.  Only answer Yes if you inherited the HSA from someone other than your spouse.

[Walt16]

I did not inherit the HSA, I own it. This question does not work with my situation. It does not give me the option to do anything else.

[Walt16]

I also did not make excess HSA contributions. Again, no options. That means I have to pay for what the TurboTax says I paid over. Why??

[BillM223]

@Walt16 

1. TurboTax follows the IRS' terminology on the inheritance of HSAs. The issue here is that when a spouse with an HSA dies and the other spouse is the beneficiary, then the second spouse does not "inherit" the HSA" but, instead, ownership of the HSA passes automatically to the second spouse. Thus, answering "no" to the question "did you inherit your HSA from your spouse" is literally the correct answer. 

Note that an inherited HSA is treated differently (worse) from an HSA that automatically passes to the beneficiary spouse, so you WANT to say NO to the initial question. An inherited HSA is declared as income in the year of death, while the HSA that passes to a spouse has no tax effect on the recipient.

2. It is easy to accidently tell TurboTax that you overcontributed to your HSA even when you did not.

Please see the following possible causes:

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

As you probably know, the maximum limits in 2023 are:

• $3,850 - individual with self-coverage
• $7,750 - 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.

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 2023?".

Fourth, if you had a carryover of excess contributions from 2022, then this carryover is applied to 2023 as a reduction to the 2023 HSA contribution limit, which could cause an excess condition in 2023 as well. But note: if you had an excess contribution in 2022 but cured it by withdrawing the excess in early 2023, then do NOT report an "overfunding" on your 2023 return.

Fifth, the Family limit ($7,750) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,750 to his/her HSA and the other contribute $3,850 to the other HSA – the $7,750 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,850).