HSA Partial Year

Forum|Forum|4 years ago
March 1, 2022
1 reply
76 views

My wife had a HDHP with a self funded HSA at the beginning of 2021. In January we funded it for the full allowed amount ($4,600). By May we had used the full amount of $4,600 on legitimate medical expenses. In August we moved to another state and did not enroll my wife in a HDHP (at the time I did not understand that the allowed HSA deduction was calculated on a monthly basis).

When I finished the TT interview for this item, TT said I had a $3,450 HSA deduction (9/12*4,600), calculated the medical deduction for Schedule A based on medical expenses minus 4,600 and no penalty. Is this correct? Or do I show that I made a withdrawal of $1,150 (4,600 - 3,450) before taxes are due (so that it matches the allowed deduction) and show a Schedule A deduction of medical expenses minus $3,450?

Best answer by BillM223

OK - just to confirm, the return is good the the way it is - all I have to do is actually make the excess contribution withdrawal (which I will do today)? With regard to Schedule A - yes I always enter total medical expense in the worksheet and then let TT net our the HSA disbursement. For next year, should I expect to receive two 1099-SAs - one for the normal distribution and one for the excess contribution? Thanks again for all the help - sorry for all the confusion. One other question out of curiosity - since the HSA is not funded through an employer where the contributions would show up in a W2, how does the IRS know how much I contribute directly into the HSA?

"the return is good the the way it is" - I hope I made it clear that your 8889 was OK...I did not offer an opinion on the rest of the return (nor could I).

"yes I always enter total medical expense in the worksheet and then let TT net our the HSA disbursement." - good Most taxpayers are unaware that that is how TurboTax works.

"For next year, should I expect to receive two 1099-SAs - one for the normal distribution and one for the excess contribution? " - yes. One 1099-SA with a distribution code of "1" for your regular expenses (presumably through your debit card), and the other with a distribution code of "2" for the excess contributions. Actually, the only impact to you will be the earnings, if any, that you (well, TurboTax) will add to Other Income.

"how does the IRS know how much I contribute directly into the HSA?" - first, because you told the IRS on line 13 of Schedule 1 (1040) :-). But the other way is that your HSA custodian keeps records also. At a minimum, during your audit, the IRS agent would collate your tax returns and the records of the HSA custodian, and they would really need to match. I also don't know what reports your HSA custodian sends monthly or annually to the IRS, but there may also be an opportunity there for the IRA to keep tabs on you.

HelenC12

Level 15

You would show that you withdrew the excess HSA contribution so that it matches the allowed HSA contribution and enter Schedule A deductions of medical expenses minus the allowed HSA contribution.

If the 2021 HSA contribution exceeds the allowable amount, the excess must be withdrawn by April 18, 2022 to avoid a penalty (October 15 if you filed an extension).

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

wsparrowhoodAuthor

Level 3

That's what I thought reading the IRS instructions. So either TT is not handling it correctly or I did not answer the questions correctly. Thanks.

BillM223

Level 15

First, did you still have HDHP coverage on September 1, 2021? Your fraction of 9/12 suggests hat you marked your spouse as covered by a Self-only plan on September 1st. That may be true, but I wanted to be sure since you moved in August. NOTE: coverage for the month is determined by the coverage on the first day of the month.

Assuming that 9 months is correct, you made a contribution of $4,600 to the HSA. As you note, you annual HSA contribution limit is $3,450, so you have an excess contribution of $1,150. If you have the money in the HSA, the best thing to do would be to withdraw the $1,150 before the due date of the return (including extensions). If you contact the HSA custodian, be sure they understand that this is a withdrawal of excess contributions (the may have an online form on their website).

If you do not have enough money in the HSA (and of course, without HDHP coverage, you are not able to add any more until you do have HDHP coverage), then the excess will carry over to 2022. You will dinged 6% penalty. However, the penalty is 6% of the lesser of the carry over or the value of the HSA at the end of the year. Thus, if your HSA value is zero, the penalty will be zero.

A curiosity of TurboTax is that TurboTax expects you to enter all qualified medical expenses in Schedule A, even those reimbursed by insurance or your HSA. Then, at the end of the Schedule A interview, you will be asked how much insurance reimbursement you received and there will be a screen telling you that $X was reimbursed by your HSA (you may be asked to confirm that). Any of the medical expenses not covered by the HSA will indeed count towards the Medical and Dental deduction on Schedule A.

Now, that you understand this, what is it that you think is not working in TurboTax?

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"