In turbotax, when I enter excess HSA contributions, do I include earnings?

[whodiini]

For 2024, I had excess HSA contribution of $25.  Using the approved IRS methodology, the earnings was $2.60.  I have asked for a withdrawal of excess from my HSA.  In turbotax, which number do I enter as excess HSA contributions, $25 or $27.60?  Turbotax does not say to include earnings, just excess contributions.  So turbotax will declare $25 as other income and not the earnings.  Is that accurate?  If I include the earnings, turbotax does not get the total amount contributed correct.  So what do I do with the earnings distribution?

[BillM223]

I have to explain several items before I can answer your questions.

When you asked for the withdrawal of excess contributions from your HSA custodian, your custodian should calculate the amount of earnings on the excess contributions, not you.

Your HSA custodian should send you - sooner or later - a 1099-SA reporting the excess contributions being returned to you.

I say sooner or later because you don't enter this 1099-SA until your 2025 tax return (early 2026). 

If the excess amount was in your employer contributions, it was removed from your entries in boxes 1, 3, and 5 - so non-taxable. As soon as this excess is discovered by TurboTax, TurboTax adds the amount of the excess back to income on your return - this is why you don't have to do anything about adding it yourself or wait for the 1099-SA.

Answers:

1. You don't enter anything in your 2024 return about your excess contributions. Let TurboTax take care of it.

2. The earnings on the excess contributions are not entered on your 2024 return anyway; it is entered on your 2025 return - you will get a 1099-SA with the earnings, that you enter on your 2025 return.

3. Seriously, don't do anything - TurboTax will automatically handle the excess contributions in 2024, and the earnings will be reported with a 1099-SA in tax year 2025.

[whodiini]

Thanks for the reply, but I am a bit confused so here is my rewording of your explanation to see if I understood.

I had an excess contribution to my HSA in 2024.  When I use turboxtax to calculate the max 2024 HSA contribution, it says I exceeded the max amount by $25.  So I entered $25 into the box where I am requesting a return by April 15, 2025 of the 2024 excess HSa contribution. My HSA will not calculate the earnings, so I used the earnings on excess IRA contributions per IRS and got $2.60.  I also requested that amount be returned.  So i do not enter the earnings on excess contributions returned in my 2024 tax year return and I will get a statement in 2024 and I will enter this amount in my 2025 tax year return.  Correct? Thank you.  

This is a pain and I would just ignore it except that the IRS will charge a 6% penalty per year forever if I dont take it out.

[BillM223 · Accepted solution]

Yes, your understanding is correct. It is a shame that your HSA custodian will not calculate the earnings; they are required to. I would consider getting a more user friendly HSA custodian, unless you are using this custodian because it's convenient for your employer.

Note that the 1099-SA for the earnings on the excess HSA contribution might not get to you until early 2025, but it will be during tax season for your 2025 return. Note that many HSA custodians make these forms available on their website.

[whodiini]

Thanks.  I am moving to a different HSA custodian, so I want to do the return of  excess contribution before the move.