HSA over funded by $4000, I then requested the money back which I recieved. I now have a W2 showing $8000 and a 5498-SA showing $4000. Trustee refuses to send 1099-SA ??

[trellerbundy]

My HR department sent me a form to use to get the $4000 back and the trustee is now saying it's the wrong form. I used a "contribution correction form" and I should have used an "excess contribution form" which would have generated a 1099-SA. TT is prompting me to withdraw $700 to get to the $7300 married max to avoid the 6% penalty but I cannot enter the $4000 without a 1099 which I do not have and the trustee flatly refuses to supply.

Please help!

[BillM223]

I don't understand, did you have an excess contribution of $700 or $4,000? If the excess was $700, why did you withdraw $4,000?

The HSA is not a savings account from which you can willy-nilly withdraw money. This is the cause of the HSA custodian's reluctance to send you the 1099-SA. because withdrawing random amounts of money from your HSA can be subject to taxations and penalties.

If the amount is actually excess contributions, then that follows a different process in the HSA custodian's paperwork, and not only does it not cause a penalty but it also generates a 1099-SA.

So come back and tell us about this $4,000/$700 and we'll work out what to do.

[trellerbundy]

Thanks for the quick reply.

I only ever wanted to fund the HSA with $4000 of my contribution, that is all I could afford. I made a mistake when I loaded in the bank details for the deduction. I loaded in my checking account details rather than the HSA account number. So I received $4000 in my checking which was not taxed as my employer believed this was HSA money. I contacted them and they reversed the $4000 from my checking account. I then corrected my HSA account number and they transferred the money to my HSA account correctly.

Once this had happened I then turned off the HSA transfer with my payrol but I was too late and another $4000 got transferred to the HSA. A total of $8000.

I contacted HR about this and they sent me a form to get the $4000 back from the HSA. I completed the form and received a $4000 check from the HSA. Having since inquired with the HSA trustee about where is my 1099-SA to reflect the withdrawal they tell me I used the wrong form.

So the W2 is actually correct, my employer sent $8000 to the HSA, TT is correct is thinking I overfunded by $700 per my W2 but in reality I only funded $8000-$4000 so $4000 which is what I think my  5498-SA will state, I don't have that yet as they get generated at the end of April. I have however looked at my 2022 HSA summary and it shows a $4000 contribution so I suspect this is what the 5498-SA will say also.

Thank you for your help.

Trevor.

[BillM223]

But your employer also knows that you reversed a $4,000 contribution - they even gave you the form to do so. 

Make another run at your employer about changing the W-2. Otherwise, do the following:

1. In the HSA interview, there is a question, "Did your employer tell you about any other contributions"? Click on Yes, and three new lines will appear. On the last line: "Employer and payroll contributions not reported in box 12 on the W-2", enter "-4000" (i.e., a negative 4,000) to show the reversed contribution. This will subtract the 8,000 down to 4,000 in TurboTax, so you should not now have an excess.

2. Document everything you did and why and stick it in your tax archive. This is not a normal situation but you are allowed to finagle with TurboTax to get the correct results for the IRS.

Make sense?

[trellerbundy]

Yes that makes sense thank you.

The employer (Federal Government) has not been very helpful thus far, they have been very short when asked for help in this matter, they even gave me the wrong form when I clearly explained to them the issue over several emails and raised my concerns about the tax implications last year. They simply replied, "just complete the form and it will be fine".

I think it will be highly unlikely they would create a revised W2 for me.

Do you think I should at least try or do you think the work around will suffice albeit with a potential question or two from the IRS if/when it raises a red flag.

Trevor

[trellerbundy]

I did try the work around you laid out and entered the -4000 in the not reported W2 box.

My federal taxes lowered by $182 and my CA $376. I was expecting my taxes to increase as I now have $4000 less in HSA contributions and $4000 more in income that should be taxed - any thoughts?

Trevor.

[BillM223]

Did your excess contribution message go away?

And what amount did the employer put into Wages in Boxes 1, 3, and 5? Was it your actual wages less $8,000 or less $4,000? I understand about the difficulty in working with payroll, but I am hoping the paperwork for your paychecks may shed some light on this.

[trellerbundy]

Box 1 is Salary less $8000 for HSA, less Dental Insurance, less TSP (401K).

Box 3 is maxxed out at $147000

Box 5 is Salary less $8000 for HSA, less Dental Insurance.

So the W2 reflects the $8000, another comment about the $8000, while the employer did send me the form to remove the $4000 they have no way of knowing if I actually submitted so in their eyes the W2 is correct. 

[BillM223]

So you will need to adjust your Wages to add that $4,000 to them. This so that your Wages are equal to your salary less $4,000 (which is what we were hoping your employer would do).

To adjust your Wages, go to Personal Income (or Income)->Less Common Income->Miscellaneous Income, 1099-A, 1099-C and click on Start or Revisit. Note that the exact navigation varies somewhat from product to product.

On the next screen, go to the bottom and click on "Other Reportable Income".

So Yes to "Did you receive any other reportable income?"

For Description, enter something like "Wage adjustment for W-2 issue with code W in box 12" - It needs not be completely clear; it only needs to remind you what it is talking about on the return.

Then add the $4,000 (positive this time) to the box next to your name. This will increase your income to compensate. 

Good catch!

[trellerbundy]

OK I worked these through this morning.

Adding the $4000 to Misc Income increases my Fed/State tax by $1400 or 35% of $4000 which is my marginal total tax rate so that looks good.

Adjusting the -$4000 in the HSA contribution section lowers my tax by $182 Fed and $372 State, I guess I was expecting my taxes to go up when I made this change as I now have a lower deduction?

Another minor wrinkle is that I still show $700 of excess employer contribution to be withdrawn which is a carryover from the my original return before we made these two adjustments so I somehow need to correct that.

Thanks for helping me walk through all this.

Trevor.

[BillM223]

"Another minor wrinkle is that I still show $700 of excess employer contribution to be withdrawn "

OK, let's delete all your HSA data. We do this because a number or two can get "stuck" in the HSA section so even if you go all the way through the HSA interview, the number that is stuck remains. (The excess withdrawn on a previous pass is one such example).

Please do the following:

1. make a copy of your W-2(s) (if you don't have the paper copies)

2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen)

*** Desktop***

3. go to View (at the top), choose Forms, and select the desired form. Note the Delete Form button at the bottom of the screen.

*** Online ***

3. go to Tax Tools (on the left), and navigate to Tools->Delete a form

4. delete form(s) 1099-SA (if one), 8889-T, and 8889-S (if one) 

5. go back and re-add your W-2(s), preferably adding them manually

6. go back and redo the entire HSA interview. 

Let's clean out the HSA data (and re-enter it) before we attack the -4,000 again.

[trellerbundy]

OK, 

I deleted those forms, added back the W2, added the Uncommon $4000 income, did the HSA questionnaire and entered the -$4000.

The total Fed and State tax moved by the following:

Added $4000 W2 income, $1404 additional tax owed (makes sense as marginal tax at 35%)

Removed $4000 HSA contribution, $554 less tax owed.

Even with clearing out the HSA overcontribution ghost that was still shown the tax position is the same as before.

I guess I was still expecting lowering the HSA contribution would increase my taxes as I now have less of a deduction?

Thanks again.

Trevor.

[BillM223]

The tax benefit of an employer's contribution to your HSA is not how much is contributed, but in how much your income was reduced in boxes 1, 3, and 5. It's only your direct HSA contribution that provides a direct dollar for dollar reduction (see line 13 on Schedule 1 (1040)).

[trellerbundy]

OK, so I think I am good.

Line 13 Schedule 1 (1040) is blank so suspect I am good. 

Thanks for all the help.

Trevor.

[trellerbundy]

Oh I actually just went into the final review section in TT and it says I have one error.... form 8889-S Line 9e should now be negaitve.

It shows -4000 in red. Can I just ignore this and submit anyway?

Trevor.