HSA contribution increased federal taxes??? Is there a bug in the program?

[BillM223]

No, this is not a bug.

This is the reason that the Refund Meter was removed from such a prominent position in TurboTax 2024, because too many taxpayers were watching it screen by screen and making the wrong conclusion when the tax jumped.

TurboTax has to do a lot of things behind the scenes, and sometimes they are not done for a while.

In this case, the HSA contributions described with code W in box 12 on your W-2 are not non-taxable until you have gone through the HSA interview to show that you have proper HDHP coverage. Since most taxpayers enter their W-2s first and the HSA interview quite a bit later, they mistakenly assume that TurboTax is incorrectly taxing their HSA contributions.

Just complete the HSA interview (Deductions & Credits->Medical->1099-SA, MSA, HSA), and you will see that the code W amount has been removed from your income.

[barristerinky]

Yep, its a bug.. no question about it.  I go through the interviews for both myself and my wife..  When I go through mine.. no problems...  taxable goes up and then back down once the interview is done.   I go through hers... as soon as I enter the 4150 in the amount contributed, it takes the amount owed up to triple...  I do the interview and confirm the same things as on mine... and it doesn't bring the amount owed back down.

But if I go to the forms view and delete hers.... like magic... back down to the correct amount owed... but only shows my 4150 contribution.

.

So... playing with it for a bit... the "magic number" is 3966... at that amount, it doesn't trigger the bug... at 3967.... bam.. there is the bug and triples what the fed tax due is.  Anything over 3966 and it bugs out...

So if it walks like a bug, acts like a bug, and reacts like a bug.. its a bug.

[SharonD007]

No, there isn't a bug in TurboTax for HSA contributions.  Go back through your answers to make sure that the questions are answered correctly regarding your HDHP.

Is your wife covered under your HDHP?  If so, the question, What type of High Deductible Health Plan did [spouse] have on December 1, 2024 should be answered None. The question is referring to the HDHP that your wife may have had in her name.  

To return to the section, to go over the questions again. Follow the instructions below:

1. Open TurboTax 
2. Select Deductions and Credits
3. Scroll down to Medical and select Revisit next to HSA
4. Edit your answers in the HSA interview and make sure that you answer None for your spouse.

For information, refer to the TurboTax article What is a high-deductible health plan (HDHP)?

If you still need help, reply back.

[barristerinky]

Is your wife covered under your HDHP?  If so, the question, What type of High Deductible Health Plan did [spouse] have on December 1, 2024 should be answered None. The question is referring to the HDHP that your wife may have had in her name. 

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Thanks for the reply...   This is my situation... I am a self employed attorney.. wife is a self employed realtor.  I have my own HDHP for myself and my wife has one for her and my children because it was cheaper than getting one for the whole family.  So we each have our own separately.

When going through the entry and interview, my taxes owed went from $4K or so after I did my HSA entries, up to 12K after I entered her 4150 contribution and went through the interview for her stating that she had her own HDHP for a family plan.     Then the desktop version sticks and won't let me delete that unless I manually delete the form in the forms view.

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After deleting her form, taxes owed back down to the 4K...

[BillM223]

It sounds like you had Self-only HDHP coverage and your wife had Family HDHP coverage.

It is a common issue that taxpayers don't realize (as obtusely explained in IRS Pub 969) that in this case, BOTH spouses share the Family HDHP coverage and the Self-only policy is ignored for purposes of calculating the annual HSA contribution limit.

That is, for 2024, the total amount that you two can give to your HSA (do each of you have one? You should) is $8,300. If the person that owns the HSA is 55+, then you can add $1,000 (proration applies if you turn 55 in 2024).

Hmmmn, as for desktop sticking, you may find it necessary to just clear out your return of any HSA data and start over. I really don't want you to make entries in Forms mode, because (1) you can't e-file, (2) it negates the Tax Accuracy Guarantee, and (3) most importantly, this is how most taxpayers get the 8889 and the 5329 wrong.

To clear out your HSA data, please do the following:

***Reset***

1. make a copy of your W-2(s) (if you don't have the paper copies)

2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen)

*** Desktop***

3. go to View (at the top), choose Forms, and select the desired form (1099-SA (if one), 8889-T, and 8889-S (if one)). Note the Delete Form button at the bottom of the screen.

*** Online ***

3. go to Tax Tools (on the left), and navigate to Tools->Delete a form 

4. delete form(s) 1099-SA (if one), 8889-T, and 8889-S (if one)

5. go back and re-add your W-2(s), preferably adding them manually

6. go back and redo the entire HSA interview....unless you didn't have an HSA, in which case you just continue with your return.

[barristerinky]

Sorry for replying in several threads..  It sounds like the problem here is the classification of there being one single member HDHP HSA plan and there being one family designated plan...    So even though my wife's covers her and my 2 kids, I should enter it as a Single member plan since mine is Single as well?  So we have 2 Single member HDHP plans (which isn't technically correct)

From that IRS Publication:  Rules for married people. If either spouse has family HDHP coverage, both spouses are treated as having family HDHP coverage. If each spouse has family coverage under a separate plan, the contribution limit for 2024 is $8,300.

So yes, that would have been helpful info for the IRS to make pretty prominent, or for Intuit to just insert a little note there on that page saying "Hey, if you have 2, make sure they are both Single... or both Family.. mixing them confuses the program".

[BillM223]

No, it isn't the program that is confused - it is working exactly as the IRS wants. 

The problem is that it is not at all obvious to the casual taxpayer that the annual HSA contribution limit is shared between the two spouses, and that for purposes of calculating the annual HSA contribution limit, the other spouse's Self-only (or Family) limit is ignored. But TurboTax will fill out the 8889 for each spouse if needed (only needed if each spouse has an HSA) and automatically allocate the HDHP coverage as needed between the two spouses. 

Making so that both spouses enter as Self-only does not work, for a variety of reasons. After all, with Family coverage, one spouse can contribute $8,300 to an HSA, which would be OK for Family coverage and not OK for Self-only.

The problem with DIY software (which TurboTax is) is that it has to assume that you have some knowledge of tax. Otherwise, the program would be infinitely larger, full of screens that do nothing but teach you tax law.

Could TurboTax do it? Yes, but at some point, they have to limit their Learn More links. That's why we are here, to answer tax questions that are not obvious.