Overcontribution to HSA in 2019 showing up on tota...
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Level 2

Overcontribution to HSA in 2019 showing up on total income even though I have withdrawn/rolled over to 2020

Hi,

I had changed employers due to which I over contributed to my HSA by about $1300. Now this amount shows up as 'Other income' in my Total Income.  My entire tax breakdown for my income for 2019 is showing this amount added. Meaning my gross income for the 2019 includes this excess amount in the calculation.

Why is the TT software doing that after I have confirmed that I have removed/withdrawn the funds (in reality rolled over this excess amount to the year 2020 with my HSA provider)?

Is this going to affect my Federal/State taxes?

 

Thanks,

Ani

5 Replies
Employee Tax Expert

Overcontribution to HSA in 2019 showing up on total income even though I have withdrawn/rolled over to 2020

Most taxpayers contribute to their HSA through their employer (see code W in box 12 on your W-2).

 

The code W amount includes both your employer's contributions and your contributions through payroll deduction.

 

The code W amount is removed from Wages in boxes 1, 3, and 5 before the W-2 is printed.

 

Since the excess amount is not deductible, this amount of the excess has to be added back to Other Income because it was already removed from federal income and now we realize that the excess should not have been.

 

This happens whether or not you carry over the excess to the next year.

 

You may be able to deduct it in 2020 (if you reduce your other HSA contributions), you just can't deduct it in 2019.

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Level 2

Overcontribution to HSA in 2019 showing up on total income even though I have withdrawn/rolled over to 2020

@BillM223 

I still haven't gotten this question resolved, I am afraid :(

Does adding this excess contribution to 'Other income' mean I paid tax on it (this excess contribution) in 2019 ?

Level 15

Overcontribution to HSA in 2019 showing up on total income even though I have withdrawn/rolled over to 2020


@AS3 wrote:

@BillM223 

I still haven't gotten this question resolved, I am afraid :(

Does adding this excess contribution to 'Other income' mean I paid tax on it (this excess contribution) in 2019 ?


Yes, if you removed the excess contribution, it is added to your taxable income.  This is correct because it was not included in your taxable income W-2 box 1.  The disallowed contribution is added back to your taxable income because it does not qualify as a tax-free contribution. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Level 2

Overcontribution to HSA in 2019 showing up on total income even though I have withdrawn/rolled over to 2020

Thank you for getting back. Appreciate the prompt response. It would have made sense if I would have actually withdrawn it. 

I was given an option - reading through posts on TT community and chose to carry it over to this tax year 2020. So if I have already paid tax on it, was I better of just actually withdrawing so I could have paid pre-tax contributions again this year in 2020? Due to the excess rolling over, I could not make an contributions this year. 

I'd like to understand this better for the future. Hard to do anything this late in the year now I guess :(

Level 15

Overcontribution to HSA in 2019 showing up on total income even though I have withdrawn/rolled over to 2020


@AS3 wrote:

Thank you for getting back. Appreciate the prompt response. It would have made sense if I would have actually withdrawn it. 

I was given an option - reading through posts on TT community and chose to carry it over to this tax year 2020. So if I have already paid tax on it, was I better of just actually withdrawing so I could have paid pre-tax contributions again this year in 2020? Due to the excess rolling over, I could not make an contributions this year. 

I'd like to understand this better for the future. Hard to do anything this late in the year now I guess :(


If you left the excess in the account, then you pay income tax on the excess (disallowed) contributions, plus a 6% penalty.  Then if you are eligible to contribute in 2020, you can use the excess toward your 2020 contribution limit.  You will get a new deduction on your 2020 return.  Make sure to run the entire HSA interview and answer the questions about prior year excess contributions.  

 

I don't understand why you think you aren't allowed to make contributions in 2020.  If you are covered by a single HDHP, your limit for 2020 is $3550.  If you need to apply $1300 excess from 2019 toward your 2020 limit, then you can still contribute $2250 for 2020 and take the tax deduction. 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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