How do I report earnings on my excess HSA contributions? I have withdrawn my contributions for 2017 with earnings. How do I report earnings in Turbo Tax for 2017?

[anujsood11]

I was ineligible for HSA in 2017 and completed the withdrawal of contributions along with earnings in Jan 2018 for 2017. I know i owe Tax for these earnings. How do I put this in TurboTax? 

[BMcCalpin]

In TurboTax, the process is easy.

First, enter your original data (the code W amount in box 12 on your W-2 - if any).

Then, in the HSA interview (Federal->Deductions & Credits->Medical->HSA, MSA Contributions) answer the questions and add any contributions you made directly to the HSA not through your employer.

TurboTax will then detect the excess contribution and ask you if you will withdraw it before the due date of the return. You will answer "yes" because you have already done it. Then TurboTax will add it back to line 21 (Other Income) so that you can be taxed on it.

Next year, you will receive a 1099-SA with the excess and the earnings, and the earnings will be added to your 2018 tax return as other income.

NOTE: when you withdraw the excess, did you tell the HSA administrator that this was an "excess contribution" that you were withdrawing? Otherwise, they may have made it a "distribution" which, since it was not used for medical expenses, would end up hitting you with penalties.

[Delnock]

Go to Personal Income section. Select: "I'll Choose what to work on"

Select "Miscellaneous Income" which is the last choice on the personal income page

Select "Other Reportable Income" (which is the last choice on the Miscellaneous Income" page) and enter you earnings here. It will be added to the Other Income line of your 1040

[564Otto]

I am confused by Turbo Tax's answer, because it appears you will be taxed on your 2017 Tax Return for the Excess Contribution that was refunded to you.  But TT says you will also receive a SA form in 2018, and be taxed on the Excess Contributions in 2018.  That seems like you will be taxed in both years for the same Excess Contribution that you were refunded by  your employer's HSA Administration. 

[BillM223]

"That seems like you will be taxed in both years for the same Excess Contribution that you were refunded by  your employer's HSA Administration. "

In the first year, only the actual excess contributions will be added to Other Income. This is done automatically (before you know what the earnings even are) when TurboTax discovers the excess (and whether or not you agree to withdraw it), and does not depend on entering a 1099-SA.

In the second year, you will receive a 1099-SA with a distribution code of '2'. The earnings in box 2 will be added to Other Income in this second year, but the original excess will not be (even if it appears in box 1 of the 1099-SA, it is ignored).

So the excess only is taxed in year 1 and the earnings only are taxed in year 2.

[564Otto]

Thank you very much!