HSA Excess Contributions but spent a majority of the amount.

[jhuntington78]

As I started a new job I signed up for their HSA program. I only contributed $325 in 2019 on my HSA card. I spent $250 of those funds, so I have a balance of $75. TurboTax is saying I have an excess of $325 and is asking if I want to pay the taxes on the $325 or withdraw it. How can I have $325 in excess funds if I spent $250 on it? Shouldn't the excess be $75 and not the full $325 contributed? I'm really confused. Also, I have spent more of my HSA funds since 2019 on prescriptions. Please help. 

[BillM223 · Accepted solution]

The term "excess contributions" means that TurboTax thinks that you contributed more than the annual HSA contribution limit in 2019. It has nothing to do with how much you spent (distributed) or how much you have in the HSA.

It is possible to accidentally indicate to TurboTax that you made excess contributions to your HSA when perhaps you didn't. Please read the following to see if any of these situations applies to you:

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

As you probably know, the maximum limits in 2019 are:

• $3,500 - individual with self-coverage
• $7,000 - 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 2019?" 

Fourth, if you had a carryover of excess contributions from 2018, then this carryover is applied to 2019 as a personal contribution, which could cause an excess condition in 2019 as well. But note: if you had an excess contribution in 2018 but cured it by withdrawing the excess in early 2018, then do NOT report an "overfunding" on your 2018 return.

Fifth, the Family limit ($7,000) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,000 to his/her HSA and the other contribute $3,500 to the other HSA – the $7,000  limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,500).

[jhuntington78]

I started paying for this HSA in June. My total contributions from June to December were $325, so how does TurboTax think I contributed more than allowed? I am not over 55, I have had no change of events, other than I started a new job and paid towards this brand new HSA via my paycheck. I have an HSA, my husband does not (if that matters) The 2nd thru 5th response does not apply to me, however, the 1st response you said "go all the way until you are returned to the "Your Tax Breaks" page."  I can't get past any page without selecting 1 of 3 options:  1. OK, we will withdraw the full $325 excess 2. We will withdraw some of the excess or 3. No, we're not going to make this withdrawal. And this is where I"m stuck. What option do I choose? 

[BillM223]

OK. It's not obvious why you are getting this message. Can you see your form 8889?

If so, what are the amounts on lines 2, 3, 6, 8, 9, 12, and 13?

If you can't see your 8889, then please tell me

1. what is the code W amount in box 12 on your W-2?

2. What HDHP coverage did you enter for each month of the year?

3. What did you enter on the second line on the screen "Let's enter [name]' HSA contributions?

4. How did you answer the question "Did you overfund your HSA in 2018?"

[jhuntington78]

I so appreciate you taking the time to assist me with this.  I do not have a form 8889. But to answer your questions:

1. what is the code W amount in box 12 on your W-2?  $325.00

2. What HDHP coverage did you enter for each month of the year? I answered this as "no" since I did not have HDHP coverage.

3. What did you enter on the second line on the screen "Let's enter [name]' HSA contributions?  I entered "0" as I did not make any personal contributions.

4. How did you answer the question "Did you overfund your HSA in 2018?" I answered "no" because I didn't have an HSA in 2018. I just got/started it in June 2019.

[KurtL1]

The reason the program is saying you have excess contributions is because to be eligible to have an HSA, you must have a High Deductible Health Policy. Because the $325 had a code W in box 12 of your W-2, the amount was not included in your taxable income. You did not pay any income tax on the $325. 

The excess contribution of $325 will be added back on your return as Other Income. That way you will be paying the income tax on the $325 that should have been in your taxable wages.

[jhuntington78]

My deductible is $2,000. Is that a high deductible?  I also checked my insurance card and there's no HDHP on it. So which option do I choose to get past that one question?  1. OK, we will withdraw the full $325 excess 2. We will withdraw some of the excess or 3. No, we're not going to make this withdrawal.

[ColeenD3]

A high deductible health plan offers a much lower monthly premium payment in exchange for a higher annual deductible. A minimum deductible for an HDHP is $1,350 for an individual and $2,700 for a family, so you can expect to have a deductible of at least that amount if you are enrolled in a HDHP. However, HDHP out-of-pocket expenses are limited at $6,650 for an individual and $13,300 for a family.

To help offset the cost of a HDHP, you can open a health savings account (HSA). This type of account is only open to those enrolled in HDHPs and offers a tax-advantaged way to save for healthcare costs. While there are annual contribution limits, HSAs allow you to roll over your balance from year to year. You can also contribute to an HSA pre-tax, which is a big advantage.

If you have an excess, you should withdraw it. Otherwise, you are subject to a 6% excise tax on excess contributions.

[jhuntington78]

I just realized I had (3) different types of health insurance last year. From the job I had at the beginning of the year (4 months), cobra (1 month), and then my new health plan (7 months) with my new job that I created an HSA with.  Once I said "yes" to the HDHP it asked if I had it for the whole year or part of the year. I chose part, then selected the months I had my new insurance with. Once I did that, it bypassed that question to withdraw my excess. I don't know 100% if my plan is an HDHP but I'll call Monday to confirm.  THANK YOU so much for the time, patience, and assistance you have given me. It is truly appreciated!