Health saving account (HSA) employer over-contribution? or TurboTax error?

[DNJ2005]

My spouse and I both have separate high deductible health plans through our employer and have separate HSA accounts. My employer contributed $6750, to my HSA account over the individual maximum by $2900;  same thing happened last year, it was $3100 over, and I just kind of ignored it and paid the extra tax and penalty thinking it would go away but now it is being carried over by TurboTax so I am trying to figure out what to do to solve this.

My spouse's, employer only contributes $400 to their HSA and they contributed nothing extra last year.

First, I was wondering if I can take my excess out and just transfer it to my spouse's HSA account and not pay any extra tax or penalty?

But then I found this on TurboTax help which confused me further:

• Spouses on separate plans: The $7,750 family limit applies to married couples even if one spouse is covered by a family plan and the other spouse has their own individual plan. In this scenario, the couple may split their contributions any way they like, as long as the couple's total contribution doesn't exceed $7,750. Spouses 55 or older at the end of 2023 are allowed to contribute an additional $1,000 to their own HSA.

Our total contribution (from our employers - none by ourselves) is $7150 which is below $7750 - so between the 2 of us this limit has not been exceeded but the turbo tax software is treating us only as individuals - is this because employer contributions are treated differently than self-contributions? Am I misinterpreting this blurb on the TurboTax help? Or is there an error in TurboTax or in the way I'm entering things?

Best case for me would be if it's a TurboTax error - but if there is not an error in TurboTax and I have these excess employer contributions, what is the best way to handle this going forward: transfer to my spouses account if allowed, just take it out and pay tax on it, or spend it to the best of my ability on qualified expenses? I wouldn't want to ask my employer to decrease the contribution - it's better to have that extra money and pay the taxes on it than to not get it unless it's against the rules for them to be over contributing or something.

Thanks for the help in advance!!

[Mike9241]

apparently you left the supposed excess in for 2022. if the discussion below applies to 2022. go back and amend 2022 to get back the penalty and show no excess. This is needed because that $3100 excess doesn't exist but Turbotax doesn't know this and would use $600 to max out 2023 with the remaining $2500 again subject to penalties.  Surprisingly, you can take that supposed excess out because it doesn't exist and thus would be treated as a disqualifying distribution. For the 2023 TurboTax if the $3100 is truly not an excess you'll have to go into the carryover worksheet to eliminate it.  

even if one spouse is covered by a family plan  (TURBOTAX DOES NOT CAREFULLY EXPLAIN THE MARRIED COUPLE FAMILY PLAN EXCEPTION)

the tax laws say that if either spouse, but not both, has a HDHP family coverage both spouses are treated as having HDHP family coverage. The family plan must have a minimum annual deductible of $3000 and a maximum of $15,000 to be a qualifying HDHP for HSA contributions. If both of you have a family plan then neither plan can have below the minimum or above the maximum amounts to be a qualifying plan. (IE if one family plan is below the minimum or above the maximum, neither spouse has a qualifying HDHP so no HSA is allowed)

so assuming at least one of you has a family plan and the other does not have disqualifying coverage 

then the max for 2023 is 7750 or the actual amount contributed and you don't want to make up the difference personally.. however, to avoid a problem a minimum of $400 should be allocated to your spouse

provided there is no disqualifying coverage and at least one plan is a qualifying HDHP you must check family coverage on both 8889s (this is true even if one of the plans is self only) 

[DNJ2005]

Thanks for the response!

So we are a couple with no kids, and each have our own health insurance plans through our different employers. So I checked the boxes in TurboTax saying we both have individual plans. Can mine be considered a family plan even though I'm the only one on it? (when I login to my health insurance app it does list both Individual and family deductibles)... I did see that when I change it to a family plan in TurboTax for both 2022 and 2023 that fixes the issue and I don't get any excess contribution or penalty taxes.

If that is the case and I did it wrong by selecting individual plans, I'm guessing I probably need to file an amended return and get back the extra taxes I paid.

[dmertz]

If you each have self-only HDHP coverage, neither one of you has family HDHP coverage and each of you is limited to $3,850 of contributions to each one's own HSA for 2023.  In this case, TurboTax is correct that you have made an excess contribution of $2,900 that you need to have returned to you by requesting a return of excess contribution from the HSA custodian before the due date of your 2023 tax return, including extensions.  The excess $2,900 contribution will be subject to penalty each year until corrected.

If to date your spouse has made only $400 of HSA contributions to her HSA for 2023, your spouse can contribute another $3,450 for 2023 to bring her 2023 contribution total up to $3,850.

If you obtain the return of your excess contribution by the deadline or your spouse makes an additional contribution for 2023, you'll need to amend your 2023 tax return if you have already filed.