Is there a glitch in TurboTax Deluxe 2025 regarding excess HSA contributions?

[waterdoc1]

My employer made pre-tax contributions to my HSA in 2025 of $1020.  I found out I am ineligible to make this contribution because I signed up for Medicare.   I entered form 1099-SA correctly and chose distribution code 2 (excess contributions) and selected the "yes" box to the question "Tell us if your excess HSA/MSA contribution was made by your employer and deducted from the wages in box 1 of your W2".  However, Turbo Tax shows this amount as "Tax-free employers contributions".  I'm sure that is incorrect as this amount should be added to my income as "Additional income from schedule 1, line 10" on line 8 of Form 1040.  Is this a software error?

[BillM223]

No, there is no software error.

When TurboTax discovers that you have excess contributions and that these contributions came from "employer contributions" (i.e., in Box 12 of your W-2 with a code of W), then TurboTax immediately adds the amount of the excess contribution to line 8f on Schedule 1 (1040). This is why you do not have to go looking for a way to add the excess back to income - TurboTax has already done it for you.

This is also why TurboTax asks "if your excess HSA/MSA contribution was made by your employer and deducted from the wages in box 1 of your W2", because if the answer is "yes", then TurboTax knows that the excess was already added back to income so doesn't need to do anything else.

[waterdoc1]

Sorry, but Turbo Tax didn't do that.  It only inserted $61 that I received from the excess earnings in 2025, not including the $1020 that was contributed tax free from my employer in 2025.  Most of the $61 in earnings were from the excess contributions from the previous year, which I got  in early 2025.  The excess contribution for 2024 was returned to me in March of  2025 and was accounted for on my 2024 return (the excess was returned to me before the 4/15/2024 filing date), but the earnings were not.  About $10 of the $61 were from the excess contributions I made in 2025 and all of my remaining excess contributions of $1020 and earnings were returned to me December 24, 2025 and were reported on my 1099-SA.

The problem started when I found out in February of 2025 that I was no longer eligible to contribute to my HSA.  But by that time, I had already signed up for a high deductible health plan for 2025 and couldn't change it.  I reduced my contributions to my HSA by as much as my plan would allow, which is why I only had $1020 sent to my HSA for 2025 and only ~$10 in earnings.  Here is a screenshot from my TurboTax return, schedule 1, Line 8.  It should read $1081according to your answer.

[BillM223]

It's unfortunate that we cannot see your screenshot (this ability doesn't seem to be with us this year), because I don't understand your situation.

On your W-2 in box 12 with a code of W, you had $1,020, correct? And you marked every month in 2025 as being on Medicare (or None), correct?

In this case, TurboTax should have told you on a custom screen in the HSA interview that you had excess contributions of $1,020 and asked you what you wanted to do with it. You evidently answered that you wanted to withdraw the excess by the due date of the return, correct?

So TurboTax in this case would add the excess $1,020 back to your income on line 8f on Schedule 1 (1040). So what did I misunderstood something on your part?

[waterdoc1]

"On your W-2 in box 12 with a code of W, you had $1,020, correct? And you marked every month in 2025 as being on Medicare (or None), correct?"  Correct to both questions.

"In this case, TurboTax should have told you on a custom screen in the HSA interview that you had excess contributions of $1,020 and asked you what you wanted to do with it."  No, it never asked that question and that's where I think the problem is.  When I had excess contributions in 2024, TurboTax 2024 did ask that question and I expected TT2025 to do that as well, but it did not.  And TT2024 did treat that distribution correctly by adding it to my 2024 taxable income.  The HSA summary screen shows:

• Deduction  $0
• Total Distributions  $5495  (Comment:  I paid 2024 taxes on $4475 of this amount since I got the distribution prior to the 4/15/2025 due date.)
• Taxable Distributions  $0
• Taxable Earnings on Excess Contributions  $61
• Tax-free employer contributions  $1020
• Excess employer contributions withdrawn  $0

I've retried it many times and get the same result.

[BillM223]

I cannot reconcile what you describe with what I see in my tests. In my tests, the code W amount shows up as "Excess employer contributions withdrawn" because I chose to tell TurboTax that I would withdraw it (as I think you did).

However, I am struck by one comment that you made: "I've retried it many time and get the same result".

Occasionally, a number in TurboTax gets "stuck"; that is, the number stays in TurboTax from pass to pass, even when you have changed other values which should have caused that number to go to zero (or at least change).

The only cure I have ever found for this is to do an "HSA Reset", which is a process by which you remove all the HSA data so that you can start again fresh. Although it is a certain amount of work, it will be faster and more certain than going through the interview over and over hoping to get it right. 

Just remove all HSA data as shown below. 

HSA RESET

***Reset***

1. make a copy of your W-2(s) (if you don't have the paper copies)

2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen)

*** Desktop/Windows***

3. go to View (at the top), choose Forms, and select the desired form (1099-SA (if one), 8889-T, and 8889-S (if one)). Note the Delete Form button at the bottom of the screen.

*** Online ***

3. go to Tax Tools (on the left), and navigate to Tools->Delete a form 

4. delete form(s) 1099-SA (if one), 8889-T, and 8889-S (if one)

5. go back and re-add your W-2(s), preferably adding them manually

6. go back and redo the entire HSA interview....

If you are using Desktop/Mac, let me know - I will look up how to delete a form on the Mac.

If by some odd chance, you see a form 8853, please delete it as well, as well as the MSA worksheet that goes with it (probably right below).

[waterdoc1]

Bill,

Sorry, but the workaround didn't change anything.  I'm still stuck with $1020 that I should be adding to my income that TurboTax says are tax free employee contributions.  Did everything you suggested.  Deleted the forms and deleted and readded my W@.  Went through the HSA interview and said I had Medicare and it didn't ask anything else.

At this point, unless you can push out an update that will fix it, I just may as well file my taxes (I'll wait until April 15) and wait for the IRS to come after me for the tax I owe on $1020.  Or maybe they never will.  But I will get the TT Audit Defense this year so if I get audited, I'll let Intuit explain the software issues I've had to the IRS.  Maybe they'll waive the interest and penalties, which probably won't amount to much anyway.

[lincolnx]

I have the same issue. I have medicare and company contributed some money. Before 2025, it asked the question but in 2025 vesion, it did not ask this question any more. We need a fix.

[BillM223]

I have created a test that more closely resembles your situation: excess contributions in 2025, and a 1099-SA withdrawal of the excess in the same year (late 2025 or early 2026). Does this match your situation?

I answered the "Tell us if your excess HSA/MSA contribution was made by your employer and deducted from the wages in box 1 of your W2" question with "Yes". In the HSA Summary, the Tax-free employers contributions are zero, not $1,020.

Do me a favor. When you get to the HSA interview where it says that the $1,020 is "Tax-free employers contributions ", please go see your 1040 Preview (do you know how to get there?). Look to see if the $1,020 (or $1,020 plus whatever interest was in box 2 on the 1099-SA) is on line 8f on Schedule 1 (1040).

If the $1,020 is not on line 8f, then the $1,020 really is tax-free, and we have a different issue here.

[waterdoc1]

Bill,

The scenario you modeled is correct.  I received my excess contribution distribution for 2024 in March of 2025 and another distribution in late December 2025 for my total excess contributions made in 2025.  This happened because I found out in February 2025 that having Medicare (signed up in March 2024) made me ineligible to contribute to my HSA for 10 months when I did my 2024 taxes.  By then it was too late to change my healthcare plan to totally stop HSA contributions in 2025, but I reduced them to the minimum allowed by my plan.  I figured I would take care of all of this on my 2025 taxes by taking the distribution in December 2025 instead of having to worry about this for 2026 taxes.

I updated TT2025, then went through the HSA interview as you suggested.  Line 8f on my 2025 form 1040 does not include the $1020 that should be there.  It only shows the $61 in earnings that I got in 2025.  So, yes, I guess we do have a different issue.

I really appreciate your help.  I think most other folks in this same situation wouldn't catch this error in their favor (see chat string, one other person has the same problem).  I know I owe the taxes on the $1020 excess contribution deducted from my W2 earnings by my employer.  I just want to do the right thing.

[BillM223]

I am getting closer to fully understanding your situation.

First, please tell the the info in boxes 1, 2, and 3 on the two 1099-SA forms and dates (months/year is OK) in which you requested them.

Second, for each 1099-SA, how did you answer the question "Did [name] have excess contributions deducted from their wages?" Yes or No?

Third, can you give me all the non-zero values on your HSA summary at the end of the HSA interview?

[waterdoc1]

OK, thanks

1099SA #1--This one was handled correctly.  All distributions used for medical expenses.

Box 1--$1121.57

Box 2--0.00

Box 3-- 1

1099SA #2--This is the problem child

Box 1--$4372.93

Box 2-- $60.95

Box 3-- 2

My two distributions related to 1099SA #2

• $3353 March 2025 + $51 earnings (estimated--see below)
• $1020 December 2025 + $10 earnings (estimated--see below)

Here's something that may be significant.  When I get to the interview question "Enter last year's excess contribution" it says I can find that on line 48 of my 2024 Form 5329.  But my 2024 return does not have a Form 5329!   It has Schedule 1 showing $3292 on line 8f and $1660 (gambling winnings) on line 8b and the total transferred correctly to line 8 on my Form 1040.  To the interview question above, I tried inputting zero, then my estimated excess of $3353 and ran it again.  See the results:

                                                                                                 Input $0                              Input $3353

Deduction                                                                              $0                                         $3353

Total Distribution                                                                  $5495                                  $5495

Taxable distributions                                                            $0                                         $0

Taxable earnings on excess contributions                       $61                                       $61

Tax-Free employer contributions                                       $1020                                  $1020

Excess employer contributions withdrawn                      $0                                         $0

Either scenario shows no taxable distributions.  I should be paying taxes on $1081 (excess + earnings) on my 2025 return, correct?

[waterdoc1]

Forgot to mention that I answered "yes" to the question "Did [name] have excess contributions deducted from their wages?" 

[BillM223]

I want to confirm: you had excess HSA contributions in 2024, but you withdrew them all before the original due date of the return (April 15, 2025). This is the $3,353.

If so, then when you are asked about last year's excess contribution, just enter zero. In fact, when you withdraw the excess in a timely manner, you answer "No" when you are even asked if you had an excess contribution, because by withdrawing the excess in a timely manner, you "cured" the excess.

You aren't supposed to have a 5329 in this case, because the 5329 reports on something like 9 different penalty situations, none of which apply to you since you withdrew the excess in a timely manner.

I keep working on my test, and it insists on showing $1,081 ( $1,020 plus $61) on line 8f (Schedule 1 1040). This is, of course, correct, though I cannot imagine why your return does not show the same thing.

But, of course, I am more concerned about your tax return than your HSA Summary. OK, go back and answer "No" to the question of "Did you overfund your HSA last year?". Then let's see what happens.

[waterdoc1]

"I want to confirm: you had excess HSA contributions in 2024, but you withdrew them all before the original due date of the return (April 15, 2025). This is the $3,353."  Correct.

"OK, go back and answer "No" to the question of "Did you overfund your HSA last year?". Then let's see what happens."  No change.  HSA summary looks like the "$0 Input" readout in my last message.

Line 6 in my Form 1040 shows only $61, not the $1081 like you got.

Maybe I can manually make adjustments to the schedules and Form 1040 to get through this?  I'm comfortable working in Form view.

Would it help to know that I purchased my digital TT2025 copy from Amazon, then downloaded it from the Intuit site?