Excess HSA Contribution

[jdwyo]

During 2022 my wife and I had continuous HD family health coverage until we turned 65 and switched to Medicare (1st of the month in which you turn age 65).  We did not have W-2's for 2022.  I made prorated HSA contributions to our respective HSA accounts.  The contribution amounts matched the TurboTax generated maximum contribution limits.    After completing the HSA inputs, I receive an excess HSA contribution advisory.  In summary - We did not have W-2's, we did not use our HSAs, we did not inherit HSAs, but we did prorate our contributions.  I have deleted both Form 8889s, and closed TurboTax only to have the same issue occur after once again inputting my data.  I have contributed to our individual HSAs in past tax years and have never had this issue.  Any ideas on what the issue could be?

[BillM223]

Did you prorate the $1,000 "bonus"? That's a common mistake, to prorate the annual coverage by number of months, and then to just add $1,000 to the result.

[jdwyo]

I did prorate the excess and the family maximum contributions.  TurboTax has a maximum contribution calculator that also provides the prorated HSA amount that each of us could contribute.  The contributions I made to both of our HSA accounts matched the TurboTax maximum contribution calculations.  I checked our birthday dates in the personal information to ensure that they were correct.  I also confirmed that our 2021 HSA contributions did not exceed the maximum contribution amount.  It appears that the software may have a glitch based upon my experience.  

[BillM223]

"The contributions I made to both of our HSA accounts matched the TurboTax maximum contribution calculations."

This might be the issue. If you have Family coverage, that maximum contribution screen gives you the max contribution for each spouse which regard to what the other spouse did. 

As you know, the Family limit of $7,300 is shared between the two spouses (depending on your annual HSA contribution limit). So the first spouse is shown as getting the whole $7,300...then the second spouse is shown as getting the whole amount also.

So, to confirm this, tell us what were the amounts that you each contributed, and in which months did you each switched to Medicare.

[jdwyo]

I turned 65 in March of 2022 - I allowed myself two (2) months of family contributions $7,300 x 2/12 = $1,216.67 and two (2) months of excess contributions $1,000 x 2/12 = $166.67 for a total contribution of $1,383.33

My wife turned 65 in April of 2022 - I allowed her three (3) months of family contribution $7,300 x 3/12 = $1,825 and three (3) months of excess contributions $1,000 x 3/12 = $250.00 for a total contribution of $2,075.00

TurboTax indicates that one of us has exceeded our contribution by $1,216.00 which equals my share of the family contribution.  My retirement medical ceased the 1st of the month in which I turned 65 (March).  The plan allowed me to keep my wife on our retirement HD family plan until the 1st of the month in which she turned 65 (April).

[BillM223]

You accidently overcontributed to your HSAs because of the way that Family coverage works. 

While it is true that your share the Family annual HSA contribution limit, you two don't each have your own limit. Look at it this way, if you each had Family coverage for one month, $7,300 times one month divided by 12 equals $608.33. That is, you share this amount for the first month of the year, you don't each get your own $608.33. If one of you gets the $608.33, then the other gets zero for that month.

So if you get 1,217 for Jan-Feb, then there is zero for your spouse. Your spouse gets only the 608.33 for March. However, the way that TurboTax works, the HSA contribution for Family is calculated for you and then all of it is sent over to your spouse (the bonus amounts are not shared so are dealt with separately). This is why you appear to have the excess contribution because your annual HSA contribution limit is 167 (that is, your Family amount is reduced to zero so all you have is the bonus amount).

Make sense?

[jdwyo]

BillM223 - Thank you for your explanation of how the HSA family contributions are calculated when you and your spouse turn 65 in the same year.   TurboTax's maximum HSA contribution calculation apparently does not adjust the maximum contribution in our situation.  Could you confirm that we would still have separate excess contribution amounts since those excess contribution limits are separate and not shared?

[Opus 17]

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@jdwyo wrote:

I turned 65 in March of 2022 - I allowed myself two (2) months of family contributions $7,300 x 2/12 = $1,216.67 and two (2) months of excess contributions $1,000 x 2/12 = $166.67 for a total contribution of $1,383.33

My wife turned 65 in April of 2022 - I allowed her three (3) months of family contribution $7,300 x 3/12 = $1,825 and three (3) months of excess contributions $1,000 x 3/12 = $250.00 for a total contribution of $2,075.00

TurboTax indicates that one of us has exceeded our contribution by $1,216.00 which equals my share of the family contribution.  My retirement medical ceased the 1st of the month in which I turned 65 (March).  The plan allowed me to keep my wife on our retirement HD family plan until the 1st of the month in which she turned 65 (April).

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Your combined overall family limit is $1825.  Then you get a personal catch up contribution of $166 (self) and $250 (spouse).  Because you contributed $1216+$1825+$166+$250, you have an excess contribution of $1216.

It's not actually important who the excess is assigned to.  If you were filling out the form 8889s by hand, the person with the excess would be the person whose form was filled out second, based on how the instructions for the form are written.

Either you, or your spouse, needs to withdraw $1216 as a "return of excess contribution."  It would also work if you withdrew $608 each.  It doesn't matter, as long as your contribution is equal or less than $1216+166, your spouse's contribution is less than $1825+$250, and your combined contribution (before the catch-up amount) is also equal or less than $1825.

Yes, the catch-up is separate.  

[jdwyo]

TurboTax should consider adding a narrative box that would explain why the excess contribution has occurred when dealing with partial year contributions.  Your explanation was excellent, and TurboTax should consider using is to explain this situation.  Thank you for your time.

[BobzTT]

Turbo Tax is suggesting to me to withdraw $4800 from my HSA between 1.1.23-4.18.23.
I have paid exactly $4800 of medical bills in that time frame. Does the payment of bills count
as an "withdrawal"
 

[Opus 17]

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@BobzTT wrote:

Turbo Tax is suggesting to me to withdraw $4800 from my HSA between 1.1.23-4.18.23.
I have paid exactly $4800 of medical bills in that time frame. Does the payment of bills count
as an "withdrawal"
 

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No.

Did you make ineligible contributions?  You would only be recommended to withdraw contributions if they were ineligible for some reason (you did not have qualifying coverage for the whole year or you had other disqualifying coverage).  Ineligible contributions that are left in the account are subject to a 6% penalty, plus regular income tax.  If you withdraw the ineligible contributions, you still pay income tax but you don't pay the penalty.  The penalty is reassessed every year that the ineligible funds remain in the account unless you can make them eligible in the future (I will discuss that later if you want.)

A withdrawal of ineligible contributions is a special withdrawal and requires a special form, it is not the same as a regular withdrawal.

However, the penalty for ineligible contributions is either 6% of the amount of ineligible contributions, or 6% of the account balance, whichever is less.  So if you happened to make $4800 of ineligible contributions but you withdrew it all for medical expenses and your balance is zero, your penalty would be zero even though you can't remove the ineligible contributions. 

You may want to provide more details for an answer for your specific situation.

[BillM223]

Opus is correct that withdrawals for medical expenses will not satisfy the require to withdraw excess contributions.

It is possible to accidentally indicate to TurboTax that you made excess HSA contributions when perhaps you haven't.

I understand that the following list is long, but these are all reasons that taxpayers get excess contribution messages.

If you find that your situation is not one of these cases, then please make a new post in which you indicate:

• your HDHP coverage and for which months
• your spouse's HDHP coverage and for which months
• your HSA contributions (both through your employer and directly to the HSA)
• your spouse's HSA contributions (both through your spouse's employer and directly to the HSA)
• the amount of the excess
• whether or not either of you went on Medicare and what month
• whether or not (and the amount) of carryover of excess contributions from 2021 for either of you

***main answer***

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

As you probably know, the maximum limits in 2022 are:

• $3,650 - individual with self-coverage
• $7,300 - individual with family coverage
• If the HSA owner is 55 or older, then you add $1,000 to these amounts.

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced. 

There are several major culprits for excess contributions (other than just actually contributing more than the limit). 

First, if you did not complete the HSA interview - that is, go all the way until you are returned to the "Your Tax Breaks" page - the limit still might be set to zero, causes a misleading excess contribution message. 

There are questions all the way to the end of the interview that affect the annual contribution limit.

Second, it is not unusual for taxpayers to accidentally duplicate their contributions by mistakenly entering what they perceive to be "their" contributions into the second line on the "Let's enter your HSA contributions" screen.

Normally, any employee who made contributions to his/her HSA through a payroll deduction plan has the contributions included in the amount with code "W" in box 12 on the W-2. This is on the first line on this screen. Don't enter the code W amount anywhere on the return other than on the W-2 page.

Third, if you weren't in HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you were. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2022?".

Fourth, if you had a carryover of excess contributions from 2021, then this carryover is applied to 2022 as a reduction to the 2022 HSA contribution limit, which could cause an excess condition in 2022 as well. But note: if you had an excess contribution in 2021 but cured it by withdrawing the excess in early 2022, then do NOT report an "overfunding" on your 2022 return.

Fifth, the Family limit ($7,300) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,300 to his/her HSA and the other contribute $3,650 to the other HSA – the $7,300 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,650).

@BobzTT 

[BobzTT]

Thanks for replying.
I think I understand what is happening.
My wife has been on Medicare since 4.1.21.
So at age 64 my max contribution should be $3650 +1000= $4650.
Associated Bank who is my HSA administrator is showing the IRS Max Contribution as $8300 even as of today.
I need to have them fix that.
Seems like my excess contribution should be $7000-4650= $2350.  Not $4800?
See below:

[BobzTT]

Thanks for replying.
I think I understand what is happening.
My wife has been on Medicare since 4.1.21.
So at age 64 my max contribution should be $3650 +1000= $4650.
Associated Bank who is my HSA administrator is showing the IRS Max Contribution as $8300 even as of today.
I need to have them fix that.
Seems like my excess contribution should be $7000-4650= $2350.  Not $4800?
See below:

[Opus 17]

@BobzTT 

Your contribution limit depends on the kind of HSA coverage you have.  If you have family coverage (that covers yourself and your spouse), then your limit is $8300 even though your spouse also has coverage from Medicare.  (Your spouse can't contribute, but you still can.)

However, if you have single coverage, then your limit is $4350.  Maybe you switched from family to single coverage when your spouse enrolled in Medicare and forgot to update the HSA bank on what kind of insurance you have.