HSA Excess Contribution

[vlfadden]

I am entering my tax information on the desktop (windows) version of Turbotax deluxe, and the software is updated as of today.

I am entering my HSA information.  When I get to the "Let's enter ____'s HSA contributions" section, it automatically shows $4000 in the "2023 employer and payroll contributions" which came from my W-2 and cannot be edited.  The "Any contributions you personally made" box is left blank.  

I show no other contributions, did not have medicare, and was covered by a family plan (HDHP) every month of the year.   I did not overfund my HSA, but Turbotax then tells me that I have an excess contribution of $4,000 which needs to be withdrawn or it will be taxed at 6%.  This $4,000 represents 100% of my contributions for 2023.  Why is turbotax showing this excess contribution, and how do I correct the issue?

[BillM223]

First, did you have an excess HSA contribution carryover from 2022?

TurboTax should not be saying that you have an excess based on what you said, but you entered something that made it think you did.

I will append this standard answer that I have developed over the years, because accidentally indicating that you have an excess is a common occurrence. If one of these does not describe your situation come back and talk to us:

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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).

[vlfadden]

There was no carryover contribution from 2022.  I was in the HSA all year, was in the same family plan all year with no changes to the plan or HSA from previous years either. 

I have completed the HSA interview (if I understand the "HSA Interview" to be the "Now let's work on _____'s HSA" section of questions in TurboTax)  - even though doing so required that on the excess contribution page I had to indicate that I would not be withdrawing the $4000, and acknowledge that I would be taxed the extra 6%.

I appreciate any assistance you can provide.  For the record, I have not entered any of the costs multiple times so I do not understand why it could be mistakenly counting the contribution twice.  I'm pretty confused by this.  It even shows a summary of total contributions and only shows $4000 as the total, so apparently it somehow thinks my contribution limit should be $0. 

[rjs]

Since it's putting your name in the "let's work on" and "Let's enter" headings, you must be filing a joint return. Did your spouse also have an HSA or make any HSA contributions? Does your spouse have a code W entry in box 12 of a W-2? Do you or your spouse have more than one W-2? Which boxes did you check on the screen that says "Tell us about the health-related accounts you had in 2023"?

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@vlfadden wrote:

I have completed the HSA interview (if I understand the "HSA Interview" to be the "Now let's work on _____'s HSA" section of questions in TurboTax) 

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The "HSA interview" is everything from "Tell us about the health-related accounts you had in 2023" until you get back to "Your 2023 Deductions & Credits." You have to answer all the questions about both you and your spouse.

[Mike9241]

did you get to the HSA section form 8889 and check the box for each month that you had HDHP family plan coverage.  You need to review form 8889 to see what's happening in Turbotax, unfortunately, to review forms Turbotax may ask you to pay first depending on the version. 

[xyzqq]

TurboTax software is still not fixed.  TurboTax fixed form 5329 Line 47 but form 8889 line 2 will still be wrong.  TurboTax is the issue.  Wish they would hurry up with a software correction.  TurboTax cannot guarantee your tax filling is correct when their software is defective. 

[BillM223]

@xyzqq 

Please see your other thread for my latest reply.