HSA Excess Contribution

Forum|Forum|3 years ago
March 9, 2023
2 replies
0 views

Hi,

My wife and I each have an HSA. We combined to contribute $8,300 (I am over 55). My HSA has the family coverage. Because I changed jobs, I have 2 months that I wasn't covered, so I overcontributed by $1,367. I can't do the Last Month Rule because I don't have an HDHP in 2023.

We have requested a refund from my wife's HSA for the $1,367. How do I alter my entries in Turbo Tax to correctly show this?

thanks!

BillM223

Level 15

I need to clarify some things first.

First, Family is an attribute of your HDHP health policy, not your HSA.

Second, Did your spouse have an HDHP policy during the two months that you did not have the HDHP policy? (Like, a Self-only policy)?

Third, which two months of the year did you not have HDHP coverage (i.e., January, December, etc.)?

Fourth, TurboTax automatically uses the last-month rule - the way you deal with it is to reduce your contributions to what they should have been if you had not used the last-month rule. If we are talking about 2022, then it is too late to reduce your contributions.

Fifth, is your spouse going to have HDHP coverage going forward even after you cease having any HDHP coverage?

Sixth, did you become 55 during 2022, or were you 55 on January 1st?

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

jbradford65Author

Level 2

Hi Bill,

thanks for the response.

1. You are right, my HDHP was family

2. my wife's HDHP was a self only policy.

3. I was out of coverage for September and October.

4. The way I read the rule was that you had until your tax filing deadline to reduce contributions if you made an error. I got this from IRS Publication 969 (2022).

5. My spouse will have a self only HDHP plan in 2023.

6. I was 55 on January 1.

thanks for your help!!

BillM223

Level 15

"The way I read the rule was that you had until your tax filing deadline to reduce contributions if you made an error. " This is true; I was thinking of tax year 2023, not 2022.

"I was out of coverage for September and October" If this means that you will have Family HDHP coverage again in November and December, then TurboTax will automatically apply the last-month rule anyway. Since we are talking about tax year 2022, you won't notice the problem (well, TurboTax won't, anyway) until you do your 2023 tax return in early 2024.

In your 2023 return, TurboTax will notice that you did not have HDHP coverage for every month in 2023. It will then ask you what your HDHP coverage was on December 1, 2022 (yes, 2022 in your 2023 tax return). When you answer Family, it will start asking you a series of questions based on the assumption that you used the last-month rule in 2022 (because you don't have a way to tell TurboTax NOT to use it). TurboTax then calculates what your annual HSA contribution limit would have been had you not used the last-month rule. At the end, TurboTax, tells you how much was added to your Other Income.

Please note that it is difficult for a taxpayer to predict what their excess HSA contribution will be - therefore, we strongly discourage them from withdrawing "excess" HSA contributions from their HSA before they do their tax return, because they frequently get it wrong. Instead, wait until TurboTax tells you what the excess (if any) is.

In your case for 2022, because TurboTax will apply the last-month rule, TurboTax will not calculate an excess contribution. Then, in 2023, because your spouse still has Self-only coverage for all 12 months, I don't think that your excess as calculated will be as straight forward as it seem because the sharing of the Family coverage is dynamic; when TurboTax see that your spouse has Self-only coverage for September and October, it won't borrow as much of the Family coverage for her, leaving more for you.

In any case, please contact your HSA custodian and declare that the excess "withdrawal" was a "mistaken distribution". You will need to sign a form and send them a check for this amount. The HSA custodian does not have to accept this request, so be nice. Then, on the 2023 tax return, you will find out how much the penalty is (if any), and then you can take care of it.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

BillM223

Level 15

Thank you for the token.

I see that while as you said, you did not have Family HDHP coverage in September or October of 2022, you also entered that you did not have Family HDHP coverage in September or October of 2021.

That is, when you answered the question, "What type of High Deductible Health Plan did [name] have on December 1, 2021?", you answered Family or Self (whichever, it doesn't matter, but I guess you answered Family). When TurboTax compared this to your current entries for 2022 for HDHP coverage, TurboTax thought (1) you had Family coverage in 2021, and (2) you had Family coverage for 10 of 12 months in 2022 (because you had just entered it in the HSA interview).

This triggered the last-month rule processing for 2021-2022. One of the things that TurboTax asks you during the last-month rule interview is for which months in 2021 did you have what type of HDHP coverage (since it obviously couldn't look back to your 2021 return). You evidently didn't realize that TurboTax was asking about 2021 this time because you gave the same months for 2021 as you did for 2022 - Family all year except for September and October.

Please go back to the HSA interview and recheck your entries after "What type of High Deductible Health Plan did [name] have on December 1, 2021?" Note that this is for "taxpayer", not the spouse.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"