HSA Excess Contribution

[PutzRU]

When checking my federal taxes I'm being told I made an excess contribution of $5,250 in 2019. I am 66 and my wife 65 she is on Medicare but we are both still covered by a QUALIFIED HSA from my employer and my wife is in the family plan with me. I contributed a total of $6,125 into my HSA for both my wife and myself. My employer provided a $1,000 benefit into the HSA savings account for a total of $7,125. When answer the question about my wife being on Medicare I'm answering yes and then it give me a table of months during the year when she was covered then calculates that there is a total of $8,000 that can be contributed. However TurboTax then tells me I have to withdraw $5,250 as its over contributed. My employer has told me that I can still contribute up to the maximum contribution for both of us even through she is on Medicare but we are both covered by the HSA plan. Why is your software telling me I have to withdraw the money even though we are both covered by a qualified employer plan?

[MarilynG1 · Accepted solution]

If you are using TurboTax Desktop, make sure your program is updated.  There were some HSA issues that the IRS did not resolve until fairly recently. 

You are correct that your wife's Medicare coverage prevents her from being an individual eligible to contribute to an HSA but it has no effect on your eligibility for you to contribute to your HSA (an HSA has only one account holder). 

The main reason you might get an 'overcontributed' error for your HSA is that TurboTax picked up your HSA contributions from your W-2, and you also entered them again in the HSA section.

If this is not the case, make sure you indicated 'Family Plan' for your HDHP coverage. 

Click this link for more detailed info on HSA Overcontribution. 

[bt4540]

I have excess contrition in 2019 and have withdrawn it in 2020.

However, in CA state income tax, it still shows the adjustment with the original contribution in 2019. Is this correct?

[JotikaT2]

Yes. 

California does not allow a deduction for any HSA Contributions.  Therefore, even though you withdraw it in 2020, it is not reflected in your California return and the entire amount you had to report on your Federal return will be adjusted in your California return.

[BillM223]

@PutzRU

On the surface, it seems that you should not have had an excess contribution. Let's see if we can figure out what happened.

Based on the numbers you gave us, what you evidently did was to enter your contributions twice.

Your employer's contributions ($1,000) plus your contributions through payroll deduction ($6,125) can be found on your W-2 in box 12 with a code of W. In addition, on the "Let's Enter [name]'s HSA contributions" screen, you are asked about "personal" contributions. As it says on that screen, don't enter any part of the code W amount in line 2; instead, on line 2 you should enter only contributions you made directly to the HSA (not through your employer).

The code W amount was $7,125 - this appeared on the first line of that screen. When you entered the $6,125 on the second line, you doubled your contribution, for a total of $13,250.

When you apply your $8,000 annual HSA contribution limit, TurboTax thinks that $5,250 over the limit. 

Just go back to that "Let's enter [name]'s HSA contributions" screen in the HSA interview, and zero out that second line for personal contributions - the excess contribution message will go away.

[chs86]

Hello,

I had a $300 excess contribution to my Health Savings Account in 2019 that I have withdrawn prior to filing the tax return, which is not filed yet anyway.  The TurboTax federal return "recognizes" that the excess $300 was withdrawn, and is not counting it as taxable income. 

The problem is, when I move to my state return (Massachusetts), the $300 is counted as a Taxable Distribution under Fees and Other 5.05% Income.  I can't figure out how to force TurboTax to remove that taxable distribution (because it's in fact NOT taxable).  Nor can I figure out how to manually edit the tax form to remove the $300 - because I seem to remember having that ability in prior years' versions.

Please help.

[BillM223]

"The TurboTax federal return "recognizes" that the excess $300 was withdrawn, and is not counting it as taxable income. "

The question is how this HSA contribution was made. 

If you made this contribution through your employer (so that it was included in the entry on your W-2 in box 12 with a code of W), the the excess is automatically added to Other Income - line 8 on Schedule 1 (1040).

The reason is that the code W entry tells TurboTax that the employer removed the code W amount (including the excess) from Wages in boxes 1, 3, and 5, so when the excess is discovered, it must be added back to Other Income. It actually makes no difference for this particular operation whether the excess is withdrawn or not. (the withdrawal is to avoid the 6% penalty for carrying the excess over to next year)

If, however, you made the HSA contribution as a direct contribution (not through your employer), then the excess is NOT added to Other Income - rather, the HSA deduction on Line 12 of Schedule 1 (1040) is reduced by the amount of the excess.

So if the HSA contribution was part of the code W amount on your W-2, then the $300 should appear on Schedule X (MA), just as it appears on line 8 on Schedule 1 (1040). 

If your situation is different, come back and tell us.

[NN14]

Hi Bill,

We are getting similar issue (software is updated as of today 04/12/2022, so if there is any lingering issue then it is messed up). We have a family HDP via my husband and he is making $6000 for 2021 contributions via paycheck.  I figure we still have room for another $1200 to put into my HSA, but the software tells me the max we can put as a family is $4800.  

On the step "Lets enter ** HSA contributions" it picks up the 6k from W2 (which is fine) 

Second line "any contributions you personally made (not through your employer)" is $0

I selected "I was covered by a family plan every month of the year" on subsequent screen.

What are we missing here? why is the app telling me the max we can do is $4800 and we have to do excess withdrawal?

Thank you for the help

[BillM223]

"but the software tells me the max we can put as a family is $4800.  "

Is this from you pressing the "Calculate Max Contribution Limit" button on the screen of type of coverage per month? If so, please ignore it. It does not handle the situation of a married couple sharing Family HDHP coverage well. If this is not what you are referring to, please tell me where TurboTax told you that your limit was $4,800.

Your situation is not the result of any software error, but it will take a few questions to figure out what you did.

You two have Family coverage. What were the months in which both of you were covered by the Family HDHP plan and there was no conflicting coverage (like a health FSA or Medicare)?

Did you make excess contributions to your HSA in 2020? If so, did you carry over the excess to 2021?

Do both of you have an HSA? Are either of you 55+?

[NN14]

please see replies:

How know contribution limits turbo tax is telling me: Its telling me that We have contributed more than we should and is asking for how excess distribution should be handled. 

We were both covered by the same HDHP for every month of 2021

We both have HSA accounts.  My husband's account is contributed via paychecks monthly @500. Mine is usually at tax time for the remainder allowable amount.

No excess contribution made in 2020

Neither of us is over 55, no medicare coverage, no FSA election

Thank you for the help

[BillM223]

You said, "but the software tells me the max we can put as a family is $4800.  " but you did not tell me where that was. You suggested that it was when the software told you you had an excess, but you didn't tell me what the excess was.

So, let's do this:

1. When TurboTax told you there were excess HSA contributions, what was the amount it listed?

2. Did TurboTax ever tell you that the limit was $4,800, or did you just infer that from the excess amount? And if TurboTax told you that the excess was $4,800, on what screen did it do this? What was the title of the screen?

Can you do a screenshot of the Summary screen at the end of the HSA interview, with any personally identifiable information redacted? I have a suspicion that something is missing in the description.

[taxiology]

I got two W-2s in my 2022 tax year.  

This is what I got in my first W-2:

   LessCafe 125 HSA (W-Box 12) $1,724.97

This is what I got in my second W-2:

   12d  W     $912

   2022 W-2 Miscellaneous information:

   HEALTH SAVINGS ACCOUNT ERROR  - ER     $156

But turbo tax is saying that I contributed:

$3829

Why?

[BillM223]

Where is TurboTax saying that you contributed "$3,829"? Is this the amount of excess contributions? Is this a message somewhere, or is it on a screen?

Since we in the Community cannot see your private tax data, help us help you.