HSA Excess Contributions

[86Mustangs]

How is it I am getting an excess HSA contribution warning in turbo tax, when my employer only put in $300 for the year and I put in $50.  Isn't the limit $3,550 for an individual.  I haven't used any of the money, since I have had expenses, as of yet.

John

[BillM223]

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 how many months
• your spouse's HDHP coverage and for how many 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 2018 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 2020 are:

• $3,550 - individual with self-coverage
• $7,100 - 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 (above). 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 had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2020?".

Fourth, if you had a carryover of excess contributions from 2019, then this carryover is applied to 2020 as a reduction to the 2020 HSA contribution limit, which could cause an excess condition in 2020 as well. But note: if you had an excess contribution in 2019 but cured it by withdrawing the excess in early 2020, then do NOT report an "overfunding" on your 2020 return.

Fifth, the Family limit ($7,100) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,100 to his/her HSA and the other contribute $3,550 to the other HSA – the $7,100  limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,550).

[tf89]

Bill,

Thx.  Great explanation, but I have a question about the 5th scenario you noted about the Family limit where both spouses have and contribute to their own HSAs.  Since in my case both spouses are over 55, and each get extra $1000, I assume the family limit is $9100.  Is $9100 the limit on what they can contribute to plans or is that the limit of the net amount that can remain in their HSAs after qualified medical expenses have been paid.  My wife and my HSA plans allow us to contribute an aggregate of $12650 and we have qualified expenses of over $5000 for a net contribution of $7650.  Since this net amount is less than the $9100, do I have any excess contributions?

[BillM223]

Actually, the Family limit is not $9,100. The Family limit of $7,100 is shared by both spouses and the $1,000 bonus is attributed only the the HSA whose owner is 55+.

That is, you cannot contribute more than $8,100 to any one HSA, because the other spouse $1,000 bonus must be contributed to that spouse's HSA.

"Is $9100 the limit on what they can contribute to plans or is that the limit of the net amount that can remain in their HSAs after qualified medical expenses have been paid."

The $8,100 plus $1,000 is the limit of what you can contribute. It does not matter how much is spent each year from the HSA(s) or if you spend nothing at all and have bundles of cash to carry over to next year.

"My wife and my HSA plans allow us to contribute an aggregate of $12650 and we have qualified expenses of over $5000 for a net contribution of $7650."

I don't understand what this means. It does not matter what your HSA plans say; the only thing that matters is what the IRS describes (not always clearly) what the rules are for calculating your individual annual HSA contribution limit.

"Since this net amount is less than the $9100, do I have any excess contributions?"

No, this is not how the annual HSA contribution limit is calculated. As I noted, the annual HSA contribution has nothing to do with how much you spend out of the HSA or how much you have left over.

The only thing that matters is how much you contribute in any given year.

Above, I said that you two could contribute $8,100 to one HSA and $1,000 to another. But to be clear, the $7,100 that is the Family coverage is shared and you two can split it any way you like.

So, you two could split the $7,100 evenly between you, so $1,000+$3,350 for you and the same for your spouse.

Whatever you do, at least $1,000 of the contribution limit must go to each HSA. Of course, you don't HAVE to contribute the whole amount, but if you do contribute the whole amount, you must put at least $1,000 in each HSA, and divide the rest anyway you like.

[elimia]

For the 4th scenario, if I had an excess contribution in 2019 through payroll deduction plan but cured it by withdrawing the excess in early 2020, how do I NOT report the "overfunding" on my 2020 return when it is already reported with code "W" in box 12 on the W-2? I've read elsewhere to get a corrected W-2 but payroll has told me a corrected W-2 is not necessary. Is there another way of telling IRS that I already withdrew the excess?

[BillM223]

@elimia

When TurboTax tells you there is an excess and you tell TurboTax that you will withdraw it before the due date of the return, then TurboTax will put this withdrawn excess on line 14b of form 8889. This is how the IRS knows that you withdrew it in time.

If you cured the excess by withdrawing it in time, then please do NOT answer Yes to the question about overfunding the HSA in the previous year.

[NelehCr0z]

In May of 2021 I received a refund or rebate of $280 from LA Care for an over payment on my health premium thru Covered CA. I am unemployed and just using my HSA balance to pay for all my medical bills and health premiums. I am not enrolled in an HDHP. When I got this rebate I called the administrator of the HSA and was advised to return or deposit the amount back to my HSA account, which I did. Then yesterday, I got a form 5498A which shows the amount of $280 as total contributions made in 2021. How do I enter or treat this on my tax return?

I would appreciate a prompt response. Thank you in advance.

[BillM223]

I don't know what the person at the HSA administrator was thinking. What you should have done is reported a "mistaken distribution".

Please look at the 1099-SA Instructions for the section entitled HSA Mistaken Distributions.

So if the HSA custodian accepts the return of the mistaken distribution (it was a mistake because you did not mean to spend the $280 in the first place for a non-qualified medical expense), then the custodian will (1) probably ask you to fill out a form, and (2) ask you to send them the $280.

Well, you sent them the $280 but they recorded it as a contribution as opposed to the return of a mistaken distribution. Call the HSA custodian and ask them to convert this "contribution" to be the return of a mistaken distribution.

Be nice, because they don't have to accept the return of a mistaken distribution. But if they balk, refer them to this line in the instructions for the 5498-SA: "For repayment of a mistaken distribution amount, see HSA Mistaken Distributions, earlier. Do not treat the repayment as a contribution on Form 5498-SA." Note that the Instructions for the 1099-SA and the 5498-SA are at the same link (see link above).

@NelehCr0z