HSA

Forum|Forum|2 years ago
September 16, 2023
2 replies
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Hi,

In the HSA interview, on the 2nd line, I initially input my own payroll deduction amount and had "overfund"message/error. Then I updated the 2nd line and put "0" there, I don't have the "overfund" issue. So the"overfund" issue is solved. But why the overall amount of the tax I need to pay is increased after I input "0" on the 2nd? Thank you.

Best answer by dmertz

Expert Reviewed

If you did not contribute the annual maximum through your employer, indicating that you personally contributed an additional amount reduced your taxable income by the difference between the amount contributed through the employer and the annual maximum. The amount that you indicated was personally contributed above the annual maximum was penalized 6%, but apparently the reduction in tax for the deduction that brought your contributions up to the annual maximum was greater, resulting a lower tax bill than without the erroneous entry.

For example, for an individual under age 55 who has single HDHP coverage, the annual limit for 2022 was $3,650. If you contributed $2,000 through your employer and erroneously said that you contributed $2,000 personally, you would get a reduction in taxable income of $1,650 and a penalty on $350. Assuming that you are in the 22% tax bracket, the reduction in taxable income would be 22% of $1,650 or $363 and you would have a penalty of 6% or $350 or $21, resulting in a net reduction in your calculated tax liability of $342.

M

Mike9241

Level 15

you double-dipped to an extent when you entered line 2. your W-2 box 1 wages were already reduced for your HSA contributions (they flow to line 9 of the 8889 along with any employer match. both are reported on line 12W of your W-2). then you took a second deduction for the same amount on line 2. to some extent you did not hit the maximum so an additional amount was allowed as a deduction. removing line 2 removed the additional deduction increasing your taxes.

maximum HSA deductions for 2022 including amounts contributed by employer and assuming you're not over 55 Type of High deductible health care coverage

single $3650 family $7300

an FYI line 2 is only for contributions made by the taxpayer directly to the HSA account and excludes amount contributed through payroll deductions.

D

dmertzAnswer

Level 15

Expert Reviewed

If you did not contribute the annual maximum through your employer, indicating that you personally contributed an additional amount reduced your taxable income by the difference between the amount contributed through the employer and the annual maximum. The amount that you indicated was personally contributed above the annual maximum was penalized 6%, but apparently the reduction in tax for the deduction that brought your contributions up to the annual maximum was greater, resulting a lower tax bill than without the erroneous entry.

For example, for an individual under age 55 who has single HDHP coverage, the annual limit for 2022 was $3,650. If you contributed $2,000 through your employer and erroneously said that you contributed $2,000 personally, you would get a reduction in taxable income of $1,650 and a penalty on $350. Assuming that you are in the 22% tax bracket, the reduction in taxable income would be 22% of $1,650 or $363 and you would have a penalty of 6% or $350 or $21, resulting in a net reduction in your calculated tax liability of $342.