Excess HSA contribution applied to next year

[aj262]

My W2 and 5498-SA is showing an excess contribution of $400 in my HSA account for 2020. However, in January 2021, I got my excess contribution corrected and applied to the next year 2021.

TurboTax is not showing me an option to correct this. It only shows me if I will withdraw the excess contribution and treats the withdrawal as my "other income" increasing my tax.

My HSA company told me it will be corrected in the 5498-SA will be generated in Jan 2022.

Can I overwrite the amount to allowed contribution of $7100 even though I have not received a corrected W2 and 5498-SA yet?

[BillM223]

No.

I assume that that your HSA contributions were made through your employer, right (code W in box 12 on your W-2)?

This code W amount was subtracted from Wages in boxes 1, 3, and 5 on your W-2 before your W-2 was printed. 

Therefore, when you show an excess, this amount has to be added back to income on line 8 on Schedule 1 (1040) in order for your income to be correctly reported.

You will receive in early 2022 a 1099-SA which will reports the earnings on the excess; this will be added to your 2021 income.

I don't know why your employer is sending you a corrected W-2 (are they really?). 

However, if they actually do, then what you need to do is file an extension, wait for the corrected W-2, then redo your return. If you file before the get the corrected W-2 to you (IF they get it to you), you will just cause more confusion and will have to amend your return later. 

TurboTax is doing it correctly; do not make any changes to the forms.

[aj262]

Hello Bill,

Thanks for your response. My employer hasn't sending me an updated W2. The original W2 has excess HSA contribution. However, I got the access contribution applied to 2021 after the W2 was generated. So, technically I didn't withdraw the excess contribution. In other words, I would be contribution lesser than allowed amount in 2021 since I got the 2020 excess contribution applied to 2021.

Is that ok to overwrite the W2 amount, and show the HSA contribution which is up to the allowed amount? I will get an updated 5498-SA in early 2022 which will show this correction.

[BillM223]

"I got the access contribution applied to 2021 after the W2 was generated"

Really? Or is what happened is that your employer withdrew the excess from 2020 and chose to recontribute it for 2021. This would be possible if your employer should have known that the employer contribution for 2020 was not valid and petitioned the HSA custodian to make the change.

That being so, then your employer should issue you a corrected W-2...the only issue with what you are suggesting is if you change your W-2 entry, and the IRS looks at your W-2 before your employer sends a copy of the corrected W-2 to the IRS - this sort of things triggers letters from the IRS. Or worse, the employer "corrects" something differently than what you expected.

The safer plan would be to file an extension, then wait for the W-2 to file. Note that the extension is an extension to file the paperwork, not pay the tax due. If you are expecting a refund, then it won't matter.

[aj262]

Actually my employer didn't correct directly. My HSA custodian sent me a form for correction and suggested me to choose an option which says "

• Individual Contribution tax year correction. (Change INDIVIDUAL contribution from one tax reporting year to another. Please note this correction can result in a corrected 5498-SA. If multiple deposits occurred please list each deposit date and the corresponding amount."

  Tax Year Funds WERE Applied to ---->  Tax Year Funds SHOULD Apply to:

  My HSA custodian is saying the new 5498-SA wouldn't be generated until January 2022. Please advise, if I can override W2 value.  

  I owe taxes, so I would need to pay estimate taxes now. 

[BillM223 · Accepted solution]

"Individual Contribution tax year correction. (Change INDIVIDUAL contribution from one tax reporting year to another. Please note this correction can result in a corrected 5498-SA. If multiple deposits occurred please list each deposit date and the corresponding amount.""

I have never seen an HSA custodian ask you which year you wanted it applied to. Well, it's their paperwork...

This sounds like your employer is not going to send you a corrected W-2 (since this negotiation is between you and the HSA custodian). If so, then what I said before is still true - if you file a return with numbers on your W-2 that differ from the numbers on the copy of your W-2 that the IRS has, then this will likely generate a letter from the IRS at some point. Your response would be to explain what happened.

So I would go back to your employer and ask about a corrected W-2 (I can't remember if they offered to do one or not). If yes, then file the extension, pay the amount you expect to owe (today), and file the actual return when you get the corrected W-2.

If no corrected W-2, then you can change the W-2 to correct the code W amount in box 12, but expect a letter from the IRS sooner or later.

In any case, document what happened and save it in your permanent tax file, for when you need to explain it to someone.

[aj262]

Understood. In that case, I think it is better overpay to IRS for now which is a small amount, or file an extension. Thanks for your guidance.

[BillM223]

I would file the extension...once you give money to the IRS, it may be difficult to get it back...