HSA Prorated Contribution & Excessive Contribution in 2019

[jguo215]

Hi, I'm in the process of preparing my tax return and was told that I had an excessive contribution of $2073 in 2019. I'm skeptical about this amount and I wanted to double check if that is really right. 

Here are my facts: 

• Under 55
• Started working full time in mid May 2019. No job Jan-April 2019 as a student. 
• Had insurance from a company Jan-April 2019. On company medicare plan starting May.
• Had no HSA before 2019 till this current job 
• Contributed a total of $3240, $2940 of which is from my paychecks) to my individual HSA account in 2019

The maximum HSA contribution in 2019 is $3500.

Assuming that 

• My HSA eligibility started in May (the month I started working), then my max HSA contribution is 3500/12 x 8 = $2333 then excessive contribution is $3240 - $2333 = $907
• OR My HSA eligibility started in Jun, then my max HSA contribution is 3500/12 x 7 = $2042 then excessive contribution is $3240 - $2042= $1198

Both scenarios suggest different excessive contribution different from what is suggested above. Can an expert please help me out? Thank you! 

[Opus 17]

Double check your answers to the health insurance question.  It sounds like Turbotax thinks you only qualified for 4 months, not 7. 

To make tax-deductible contributions to an HSA, you must be enrolled in an HSA-eligible HDHP plan on the first of the month.  If you were hired in mid-May, then the earliest you are eligible is June 1, assume your insurance coverage started on or before June 1.  That gives you a standard eligibility of $2041.67.

However, under the last month rule, you are eligible to contribute the maximum $3500 for 2019 as long as you (a) are enrolled in HSA-eligible insurance on 12/1/2019, and (b) maintain your HSA eligibility through all of 2020.  (If you contribute more than $2041 by taking advantage of the last month rule, then lose your eligibility during 2020, there will be an adjustment and penalty on your 2020 tax return.)

So for 2019, you can contribute $2041.67 without relying on the last month rule, or $3500 by relying on the last month rule.  The only reason not to use the last month rule is if you think you won't be eligible next year, either because you change companies or change insurances.

If Turbotax is not offering you the last month rule and is limiting your eligibility to 4 months instead of 7, it sounds like you got the enrollment calendar messed up in the HSA interview.  Try running the interview again.

[jguo215]

Hi @Opus 17 ! 

I really appreciate the prompt response. I confirm that the insurance I have is HDHP with HSA. I got both through my employer and just double checked on our benefit election page. I'm 99% positive that I will be eligible to apply the last month rule. However, I had just filed my 2019 return with the incorrect HSA excessive contribution amount, should I amend the return to correct this mistake? (😅 ) 

[Opus 17]

If you filed showing an excess of $2073, you either promised to remove the excess, or you left it alone and paid tax plus a penalty.  Unless you want to actually withdraw the false excess, then you will want to amend your return.

You can amend, fix the dates of insurance and claim last month rule eligibility, which should recalculate the contribution limit as $3500.  Then you would not have to withdraw any excess.  And you could even contribute an additional $260 to get an additional tax deduction for 2019.  (You would tell the program you deposited $560 instead of $300, then make sure to deposit the extra amount before April 15.  You also have to notify the bank before making the deposit that this is a 2019 deposit, so they track it correctly.)

It would be best to mail the amended return after your first return is processed and any refund paid, but I would mail it before April 15 just to be safe.  Amended returns must be mailed, they can't be e-filed, and you probably want to use a messenger service or US mail that has tracking and delivery confirmation.