The year my wife retired (2020), we made contributions to her HSA plan that were in excess of those allowed totaling $125. We have ignored the issue, paid the penalty year to year, spent down and emptied the HSA account, and I'm finally finding the time to deal with this. The excess contribution shows up, I'm being pointed back to Form 8889 and not answering the question of who was covered by HDHP during 2023. No one was, we're on Medicare, but that isn't an answer the form accepts. We cannot withdraw the $125 from the HSA, one of the forms or answers suggested showing the $125 as "other income" which I would be glad to do, but my attempt to do that failed to keep turbotax from flagging the question on Form 8889 and I don't see the $125 reported anywhere as income. How do I get out of this?
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1. Yes, the 2022 excess will be carried over to the 2023 8889 as a personal contribution in 2023. This is indeed to use up the excess in 2023...but you have to have HDHP coverage to do this. But being on Medicare, you will never be under HDHP coverage again. A conundrum the IRS has never addressed.
Sure, your HSA will eventually be emptied. Once that happens, the penalty for the carryover will go to zero, because the excise tax (penalty) is 6% of the smaller of the carryover or the amount in your HSA balance at the end of the tax year. So, when your HSA is empty, your penalty goes to zero.
Who this hurts are taxpayers who want to keep money in their HSA and not have it frittered away in penalties and service charges. But it frustrates taxpayers like you who have emptied their HSAs so no longer can contribute to your HSA so you can make a distribution in order to cut off the excess that is carried over.
OK, maybe we don't try to fix the infinite carryover, but just your Review problem.
"Part 1, Question 1 asks who was covered under a HDHP during 2023, Self Only or Family. No one was, the HDHP plan ended upon my wife's retirement 3 years ago". You did not go through the HSA interview, so you did not claim HDHP coverage, so the calculations should be correct. So just enter "Self" - this should not affect the calculations, but should get you through the Review question.
Let me know what happens...
Did you receive a 1099-SA for $125 or in which the $125 long-term excess was included?
"The excess contribution shows up" - Shows up where? In the Federal Review?
"I'm being pointed back to Form 8889" - How? In the Federal Review?
"not answering the question of who was covered by HDHP during 2023." Are you saying that you two are not doing the HSA interview?
As for the latter point, to enter the 1099-SA (that I hope you got at some point), you will need to tell TurboTax that you have an HSA (which you did until you emptied it), so that you have the chance to enter the form 1099-SA.
Go to Deduction & Credits->Medical->1099-SA, HSA, MSA->Start or Update (the navigation varies slightly from product to product). You will check that whoever had the HSA has one now, then you will go through the HSA interview. When asked if you spent any money (took any distributions) from your HSA, answer Yes so you can enter the 1099-SA.
If the 1099-SA was for the $125, then just say that it was NOT for qualified medical expenses. If the distribution was for more than $125, the answer that "Did you spend your HSA money on medical expenses only?" Answer "No, I didn't", and then some new lines will appear allowing you to specify what amount of the distribution was for medical expenses. Make sure that at least $125 was NOT for medical expenses.
This amount will be added to Other Income and penalized 20%...but the long-term excess that rolls over year and year will finally be cut off and fall off your tax return.
Now, I can't tell if you got a 1099-SA for 2023 or not. I can't tell when you emptied your HSA. Some come back and give us some details...
Thank you Bill,
The $125 excess distribution has carried over for several years and I've pretty much ignored it until now. We got a 1099-SA again this year, 2023, and it shows that we had a gross distribution of $27. The HSA account had only
$27 at the beginning of 2023 and was spent down and had a zero balance at the end of 2023.
I can show that we spent on non-medical expenses for the last $27 but I am not going to be able to capture the entire $125, at least not in 2023.
I've gone through the dialog about the HSA money and with the $27 of HSA money spent on non-medical expenses, the excess contribution has been reduced to $98. I get the message "Unfortunately, all of your excess contribution is caused by a prior year excess contribution. It is too late to remove the excess contribution." When I click on Learn More, I get three options, none of which are viable.
I like to think that I follow the straight and narrow path but it appears I've backed myself into a corner and I don't know how to get out.
What has prompted this inquiry as much as anything it the Federal review. It appears that the previous year's excess contributions are being treated as a 2023 contribution to the HSA account in form 8889. Part 1, Question 1 asks who was covered under a HDHP during 2023, Self Only or Family. No one was, the HDHP plan ended upon my wife's retirement 3 years ago. This is the loop that I cannot escape.
1. Yes, the 2022 excess will be carried over to the 2023 8889 as a personal contribution in 2023. This is indeed to use up the excess in 2023...but you have to have HDHP coverage to do this. But being on Medicare, you will never be under HDHP coverage again. A conundrum the IRS has never addressed.
Sure, your HSA will eventually be emptied. Once that happens, the penalty for the carryover will go to zero, because the excise tax (penalty) is 6% of the smaller of the carryover or the amount in your HSA balance at the end of the tax year. So, when your HSA is empty, your penalty goes to zero.
Who this hurts are taxpayers who want to keep money in their HSA and not have it frittered away in penalties and service charges. But it frustrates taxpayers like you who have emptied their HSAs so no longer can contribute to your HSA so you can make a distribution in order to cut off the excess that is carried over.
OK, maybe we don't try to fix the infinite carryover, but just your Review problem.
"Part 1, Question 1 asks who was covered under a HDHP during 2023, Self Only or Family. No one was, the HDHP plan ended upon my wife's retirement 3 years ago". You did not go through the HSA interview, so you did not claim HDHP coverage, so the calculations should be correct. So just enter "Self" - this should not affect the calculations, but should get you through the Review question.
Let me know what happens...
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