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.
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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.
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.
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