HSA Excess

Forum|Forum|5 years ago
February 23, 2021
6 replies
37 views

I overfunded my HSA for 2020 by $800. I have contacted the HSA provider for a form in order remove the excess before April 15th. I also have to include the earnings on this excess on the form. The earnings on the $800 excess is $118. I understand how to input the $800 excess into Turbotax but how to I input the $118 of earning on the excess.

Thanks.

BillM223

Level 15

In the HSA interview, TurboTax should have told you that you had excess contributions of $800. At that point TurboTax did two things:

1. It added $800 dollars to line 8 of Schedule 1 (assuming that these contributions were reported on your W-2 in box 12 with a code of W).

2. It asked you if you were going to withdraw the excess before April 15, 2021.

Normally, at the end of 2021 the HSA custodian would send you a 1099-SA for the distribution with a distribution code of '2' with the distribution in box 1 (which will be ignored) and the earnings on the excess amount while the excess was in the HSA in box 2. This box 2 amount will be added to line 8 on Schedule 1.

That is, if you withdrew the excess after January 1, 2021, then the earnings are reported on your 2021 return, not your 2020 return.

Have you already received the 1099-SA with the distribution code of '2'? Or did you just call the HSA custodian and get the $118? Don't worry about the $118 until you get the 1099-SA with the distribution code of '2', which, as I said, will be later this year or early next year.

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hikemikeAuthor

Level 2

Thanks for the Reply

A little more detail: This excess is because I have been retired for 5 years and went on Medicare in May 2020. Until May 2020, I was still on my former employers Medical insurance. My former employer contributed $1200 in January 2020 as usual. However, I miscalculated and personally contributed $2300 lump sum in February 2020. So the total HSA contribution for 2020 was $3500 ($1200 + $2300). My HSA contribution should have only been $1500 for a total of $2700. Thus the $800 excess.

So Turboxtax did tell me that I had an $800 Excess for 2020. However, that did not appear on a W-2 since I am retired and get a 1099-R. TurboTax did ask me if I plan to withdraw the Excess before April 15, 2021. I answered Yes. Therefore, I contacted my HSA Provider and they sent me a form that has a box for the Excess $ and an additional box for the Earning on the Excess $. They told me to get a tax expert to calculate the Excess Earning $ and include it on the form. They will remove the $800 + $118 from the HSA account. I actually calculated the $118 using the Treasury Reg 1.408.1. (This reference was on the form the HSA provider sent me.)

So I'm a bit confused: I send in HSA Excess Removal form and request $800 + $118 be removed from the account, but I don't file $118 as income on my 2020 return. Instead wait until I get a 1099-SA and file the $118 on my 2021 return. Is this correct?

Thanks so much for your help.

BillM223

Level 15

"However, that did not appear on a W-2 "

That's OK, I didn't realize that you were retired. I mentioned the W-2, because I wanted to make sure that the contributions in excess came from your employer (whether made by your employer or by you through payroll deduction).

All right, if your personal contribution was the cause of the excess, then instead of the excess being added to line 8 on Schedule 1 (1040), the amount of deduction that you would have had on line 12 of Schedule 1 (1040) is reduced by this $800 amount.

"They told me to get a tax expert to calculate the Excess Earning $ and include it on the form."

I commend you for calculating the earnings in the excess, but it's the HSA custodian's job to do this, not yours.

"I send in HSA Excess Removal form and request $800 + $118 be removed from the account, but I don't file $118 as income on my 2020 return. Instead wait until I get a 1099-SA and file the $118 on my 2021 return. Is this correct? "

No, do not request that the $118 be removed, only the $800 that TurboTax told you about. After all, the HSA custodian may come up with a different number than you.

The $118 will remain in your HSA, where you will be able to use it in the future. And this is why you will report it as income, because it is income to you.

And, yes, wait until you receive the 1099-SA with the distribution code of '2'; only then will you report the earnings as income (i.e., for tax year 2021).

You see why you don't report the earnings in 2020, right? Some of the earnings were from tax year 2020 (i.e. before January 1, 2020) and the rest was earned in tax year 2021 (after December 31, 2020), so the IRS just makes it all taxable in 2021.

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dmertz

Level 15

The $800 and the $188 of attributable earnings will both be removed. Because the $800 was from a personal contribution, not made through your employer, this $800 will not be included on your Schedule 1 HSA deduction. The $188, that is required to be distributed will be taxable on your 2021 tax return when next year you enter the code 2 2021 Form 1099-R into 2021 TurboTax.