I contributed to my hsa in 2018 when I was ineligible to have an HSA account. I spent entire account on medical and closed it in 2018. How do I report this on my taxes?

[jessica3]

I contibuted $150.00 in 2018 but realized my mistake in March and cancelled further contributions. I spent the entire $700 in my hsa account by June 2018 on medical expenses and closed the account at a zero balance. I messed up. I am unclear how to report this on my taxes.

[BMcCalpin · Accepted solution]

May I assume that you were eligible to contribute to your HSA prior to 2018? (Otherwise how did a $150 contribution become $700?)

In any case, this is what will happen:

1. You will tell TurboTax in the HSA interview that you did not have any HDHP coverage in 2018.

2. When TurboTax detects an excess HSA contribution, it will automatically add the excess contribution (if it was in code W in box 12 on your W-2) to Other Income (line 21 on Schedule 1 (Form 1040).

3. You will be asked if you can withdraw the excess. If you cannot (because your HSA is depleted), then the entire excess will be carried over to next year.

4. The excess carried over to next year will be subject to an additional tax that is the lesser of 6% of the carryover or the value of your HSA on 12/31/2018. Yes, in your case, this may mean zero.

5. The carryover will be treated as a "personal" contribution in the subsequent year, with the intention of charging the carryover off against next year's limit. However, if you never get under HDHP coverage again, then you will never be able to put any money into an HSA, which means that the penalty will forever be zero. There is no clear direction from the IRS how to handle this situation on a long term basis.

6. If you ever go under HDHP coverage again and want to contribute to the HSA, you will have to account for this carryover in the first year, that is, reduce your contributions in the first year by the amount of the carryover, so they they will all fit under the annual HSA limit.

[jessica3]

Thank you for the detailed answer. I was able to answer all the question you mentioned on my turbo tax account. For some reason during my complete check it is asking me to check a box (self only or family coverage) for my hdhp in 2018. It will not let me submit without checking a box. Should i clear out the 8889 form and try again or is this an unimportant glitch?

[BMcCalpin]

OK, if it caught you in the review, then when it asks you to check Self or Family on line 1 (it does not matter which one in your case, just check either one), you will also want to make sure that lines a1 through a12 in the Line 3 smart worksheet are all set to None, and that if you continue with the Review and get a message about the Line 18 smart worksheet, then set B1 through 12 also to None. Then you should be able to e-file.

[jessica3]

Your the best! Thank you so much for your help.