Excess contribution to HSA

[jeffdaisy7]

On January 1, 2023 my wife told the hospital she works at that she was going to perdiem and going on Medicare.  She had contributed $8,299.88 to her HSA account.  This is what her 1099 form & W2 form show.  The hospital said she had an excess of $3,980.70 she needed to take out and that was done on January 12, 2023.  How do we declare the added income from this modification so it is included in our taxes for 2022?

[Mike9241 · Accepted solution]

she ceased to qualify to make HSA contributions beginning with the month she went on Medicare which apparently was retroactive to some month in 2022.  so on the 8889 she would check family coverage for the months she was not on medicare and none for the month she was. can't say how that 3980 was computed since i don't know the month she ceased to qualify. it may include income which must be separately reported or perhaps the HSA lost money. the excess will automatically be included in income. however, the earnings if any must be separately reported

[jeffdaisy7]

Soc. Security  / Medicare said the contributions to the HSA had to stop 6 months before the change in her status so any contributions she made after June 1, 2022 needed to be declared as excess contributions.  Because the decision to retire had not been made until Jan. 1, 2023 we have no 1099 for the excess contribution 3,980.   How to we declare it?  TurboTax is asking for another 1099SA form showing that amount.

[BillM223]

When you do your 2022 return in TurboTax, TurboTax will calculate the excess amount based on your entries. I do not know where this $3,980.70 came from (it does not match the information you have given us). Neither the hospital nor the HSA custodian are in the position to accurately calculate the excess contributions, because they don't know what else is happening on your return.

So we have two problems:

1. it looks like you may have withdrawn the wrong amount of excess contributions, so you need to go through the HSA interview in TurboTax to have TurboTax tell you what the real excess is. ***NOTE*** as soon as TurboTax sees that there is an excess, this amount is added back to your income on Schedule 1, line 8f. Therefore, you don't need to take any action to add this to income. See "How to we declare it?"

2. If the $3980.70 is the real excess, then go to #5.

3. Contact the HSA custodian and tell them that there was a mistaken distribution (use this phrase) for the excess distributions (use this phrase also). They will ask you to complete a form (it's probably online) and to send them a check for the amount.

4. Then ask for a withdrawal of the correct amount of the excess contributions. There is probably a form on the HSA custodian's website for this as well.

5. The HSA custodian may send you the 1099-SA soon or wait until the end of 2023 or even early 2024. Why? Because the earnings on the excess amount need to be calculated (there is a formula, but your HSA custodian really ought to do it). Then a 1099-SA is sent to you with the excess amount in box 1, the earnings in box 2, and the distribution code of '2' in box 3.

Why do they wait? If you think about it, the earnings normally span two calendar years - in your case, 2022 and 2023. This means that the earnings need to be added to your 2023 return.

P.S. if $3,980.70 is the real excess, please come back and tell me because this doesn't match what you have given us.