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gb1
Level 3

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

I really don't the know the answer to the question TurboTax is asking. So, to be on the safe side, I would rather pay taxes for the excess contribution. It seems like there isn't a way to do so.
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Accepted Solutions
BillM223
Employee Tax Expert

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

When TurboTax determines that you have made excess contributions to your HSA for 2020, and if the contributions are through your employer (i.e., code W in box 12 on your W-2), then TurboTax automatically adds the amount of the excess to Other Income on line 8 of Schedule 1 (1040). This increases your taxable income and tax.

 

If, on the other hand, the excess contributions were made by direct contributions by you to the HSA, then the amount that would have been on line 12 of Schedule 1 (1040) as an adjustment to your Adjusted Gross Income, is reduced so that your income ends up being the same was it would have been if the contributions were through the employer.

 

So the result is the same either way.

 

Don't worry, you will pay the tax on the excess contributions, either way. And early next year, you will receive a special 1099-SA, reporting the earnings on the excess before you withdrew them (I hope you do before this coming Monday, the 17th) so that you can tax on the earnings for tax year 2021.

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10 Replies
BillM223
Employee Tax Expert

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

When TurboTax determines that you have made excess contributions to your HSA for 2020, and if the contributions are through your employer (i.e., code W in box 12 on your W-2), then TurboTax automatically adds the amount of the excess to Other Income on line 8 of Schedule 1 (1040). This increases your taxable income and tax.

 

If, on the other hand, the excess contributions were made by direct contributions by you to the HSA, then the amount that would have been on line 12 of Schedule 1 (1040) as an adjustment to your Adjusted Gross Income, is reduced so that your income ends up being the same was it would have been if the contributions were through the employer.

 

So the result is the same either way.

 

Don't worry, you will pay the tax on the excess contributions, either way. And early next year, you will receive a special 1099-SA, reporting the earnings on the excess before you withdrew them (I hope you do before this coming Monday, the 17th) so that you can tax on the earnings for tax year 2021.

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gb1
Level 3

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

Hi Bill, Thank you for the explanations. Regardless of what answer I choose, Excess amount is not shown in Schedule 1 (line 8 or line 12). Instead, excess amount gets deducted from the medical distribution I got on Form 8889. I was expecting something different to happen for YES/NO answers. That's not the case, it simply reduces my other distribution. Is this all good? Thank you again.

BillM223
Employee Tax Expert

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

What line are you talking about on the 8889? Line 14b?

 

So, are we talking about the withdrawal of excess contributions? 

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gb1
Level 3

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

Hi, Yes 14b. I got two 1099-SA's. One (code 2) for excess (small amount), and another (code 1) for medical distribution (larger amount). Turbo tax simply subtracts the excess from medical distribution. I was confused because same thing happens regardless of the answer to the question. And, no change to the tax at all.

I hope I provided all info. If not, please ask me for more details. Thanks.

gb1
Level 3

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

Actually, TurboTax adds the two distributions and shows the total on Line 14a of 8889. Then shows the excess on Line 14b. In the end, whole thing makes it look like I never got the excess distribution.

BillM223
Employee Tax Expert

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

OK, On this second 1099-SA - the one with the amount in box 2 and the distribution code of '2', is there an amount in Box 1?

 

I have never seen this question before (I thought you were referring to a different one). At this point, I am not sure why TurboTax is even asking.

 

Tell me, you are doing your 2020 tax return, right? And did you have excess contributions on your 2019 tax return or on your 2020 return?  On whichever return it was, were the excess contributions made through your employer or not?

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gb1
Level 3

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

Yes, Box 1 has an amount, box 2 has the earnings in cents, and code is 2.

Both 1099-SA say "For calendar year 2020"

Yes, I am about to file my 2020 tax return. 

I am not sure if this for excess contribution from 2019 or 2020. I never got any money as refund, and it's not a big deal, I just want to pay taxes for it -- just don't know how.

May be Turbotax is doing the right thing, I just need to choose YES and leave it up to TT to subtract the excess contrib from total on Form 8889 with no change to the income or tax. Thoughts? Thanks for all the help.

 

BillM223
Employee Tax Expert

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

"I am not sure if this for excess contribution from 2019 or 2020." TurboTax would noisily tell you if you made excess contributions - it's not something that you miss.

 

But how it is treated depends on which your excess contribution was made.

 

"Actually, TurboTax adds the two distributions and shows the total on Line 14a of 8889. Then shows the excess on Line 14b. In the end, whole thing makes it look like I never got the excess distribution."

 

The withdrawal of excess is not subject to a 20% penalty like a distribution for non-qualified medical expenses would be. This is why the excess withdrawal is being subtracted from the total distributions, so you won't be hit by a 20% penalty. The earnings are not subject to the 20% penalty either.

 

 

"One (code 2) for excess (small amount), "

 

When you wrote this, did you mean that the amount was in Box 1 or Box 2 or different amounts in the two boxes? The amount in Box 1 might be the excess contributions that we withdrawn, while the amount in Box 2 is the earnings on the excess amount withdrawn.

 

OK, let's review:

 

"Excess amount is not shown in Schedule 1 (line 8 or line 12)." This means that it was not an excess in 2020, so an excess in 2019.

 

In this case, if you withdrew the excess for 2019 by July 15, 2020 (late because of the pandemic extension), the the excess would have been added to your 2019 return. In early 2021, you would have received a 1099-SA with the earnings in box 2 and distribution code of '2', so that the earnings could be added to line 8 on Schedule 1 of your 2020 return.

 

The other 1099-SA that you describe is probably for your regular distributions (the medical expenses you paid with your HSA debit card).

 

"Excess amount" - wait, which "excess amount" are you talking about? The amount that was withdrawn in early 2020 or the earnings in box 2?

 

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gb1
Level 3

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

Bill,

You seem like an expert in these matters. I think I am just going to file. All I know is that I did not go over the limit for both years. My employers have changed. However, according to my previous coworker, my prev employer reverted some HSA contributions due to an accounting error. That's why some of us got a second 1099-SA with excess contribution. You are right, this accounting error occurred in 2019. However, they reverted in the contributions in 2020, making it look like excess contrib was withdrawn in 2020. In any case, since this is an employer portion they put and took out, I am just going to choose YES for the question and press forward.

Thank you for everything.

BillM223
Employee Tax Expert

"Excess contribution deducted from your wages?" Turbotax asks this question after HSA 1099-SA. Regardless of my answer YES/NO, it doesn't increase or decrease tax. How?

"my prev employer reverted some HSA contributions due to an accounting error. " - ah, that makes things a lot clearer.

 

"However, they reverted in the contributions in 2020, making it look like excess contrib was withdrawn in 2020" Yes, well, the excess was withdrawn in 2020 ;-). This timeframe seems perfectly normal.

 

I am sorry that I can't yet satisfactorily answer your original question, but I suspect that this message - which I don't recall ever seeing before - has been recently added, and I haven't yet figured out what it is intended for. However, it seems that your return is probably correct, so hopefully all's well that ends well...

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