HSA Overcontribution

[stockwsr]

I am stuck on how to handle over contributions for our HSA in 2020. My wife and I have separate HSA accounts. We are both on HDHP with our employers, I have both children on my account and she has self coverage. We contributed in total $10, 450 ($6949.86 to my account $3500.14 hers). I have since withdrawn $3,050 from my account to get us to the 2020 limit. However I likely will no get new W2 or 5498 in time to file taxes. Since we have separate accounts and fill out the form 8889 separately it how do I handle the over contribution. Without updated W2 and 5498? Do i just need to put the over contribution amount on my 8889 in line 14b? 

Thanks in advance!

[dmertz]

Did you mean to say that you had $3,350 of excess contribution removed (not $3,040)?  Removing only $3,050 still leaves you with a $300 excess contribution.  (I assume that you are under age 55, otherwise $3,050 would have been more than your excess contribution.)

When TurboTax indicates that you have an excess contribution, allocate all of the excess to you (not to your wife), then indicate the amount that you will have had returned by the due date of your tax return.  TurboTax will remove from the amount on line 9 of your Form 8889 the amount returned.

Assuming that the return of contribution was done in 2021, you'll report the code 2 Form 1099-SA on your 2021 tax return and any attributable earnings that accompanied the returned contribution will be taxable on your 2021 tax return.

[stockwsr]

Good Catch- yes correct $3,350 was withdrawn. 🙂  So will it subtract the $3,350 over contribution (that is now withdrawn) from line 9, meaning that number will be $3,599.86? Does anything need to be entered in 14B?

[dmertz]

Nothing goes on line 14b unless you have a code-1 2020 Form 1099-SA (reported on line 14a) and you rolled over some of that distribution.  You haven't mentioned any such rollover.  (Using this return of contribution to make an HSA contribution for 2021 is not a rollover.)

No changes to your 2020 W-2 or 2020 Form 5498 will be made.

[Opus 17]

Your W-2 and 5498 won't change, because they report what actually happened in 2020.

After Turbotax tells you that you contributed an excess amount, it should ask if you will remove it before the tax filing deadline, or choose to leave it in the account and pay the penalty.  When you indicate that you removed the excess, Turbotax will make the correct changes to your tax form.  The withdrawal of excess will be reported to the IRS, so everything will match up in the end and you shouldn't get any nasty letters from them.  If your account earns interest, the interest on the excess also needs to be withdrawn, and that will be reported as taxable interest income on your 2021 return, since it was actually paid to you in 2021.

By the way, a withdrawal of excess contribution is not a normal withdrawal and probably requires extra paperwork at the HSA bank.  If you just did a regular withdrawal, you messed it up.  You will need to put that money back (a "return of mistaken distribution" which is also a special procedure) and then make a correct "withdrawal of excess contribution."

[stockwsr]

Thanks for the replies- I did do the Refund Excess Contribution option and had to back date with my HSA provider so should be good there. For my own sake does it then add the excess withdraw back into our taxable income? 

[Opus 17]

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@stockwsr wrote:

Thanks for the replies- I did do the Refund Excess Contribution option and had to back date with my HSA provider so should be good there. For my own sake does it then add the excess withdraw back into our taxable income? 

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Yes, Turbotax will do that automatically. 

[stockwsr]

Hello- me again- so now that it is time to file 2022 since I have a 1099-SA for the amount withdrawn last year as excess contributions do I just need to report that per usual selection distribution code 2? The earnings paid last year account for any penalties? 

[BillM223]

1. When TurboTax asks you if you paid for anything from your HSA in 2021, answer YES. (this is confusing but it is the only way you get to the screens into which you enter the 1099-SA).

2. Enter the 1099-SA as is. If you got two 1099-SAs (one for the excess from the previous year and the other for your regular medical expenses), enter both forms.

3. When TurboTax asks you if you "overfunded" your HSA in 2021, answer NO. What it is really asking you is "did you carry over any excess to 2022?" Since you withdrew the excess instead, the answer is NO.

4. From your description, you should not have had any penalties for either year. 

5. You are now done with the excess.

[formoey]

Hi! I'm not OP, but I have a similar issue. I made excess contributions of $800 in 2021. I filled out forms with my HSA provider in 2022 to withdraw the $800 back into my paycheck in February 2022.  However, I am struggling to understand how/if I report anything in 2021. 

I do NOT have a corrected W-2, so I am under the impression I need to report the $800 as Other Income - but I cannot get TurboTax to prompt me about this excess contribution. The closest HSA prompt asks "Did you overfund your HSA in 2020". It says 2020 - not 2021. So my answer to this would be No. Do I not have any reporting to do for my 2021 tax return?

Thanks!

[RaifH]

If you made an over-contribution of $800, TurboTax should have also calculated that and informed you of it. If you had a high deductible health plan all year and are under 55, your contribution limit is $3,600 if you have a self-only plan or $7,200 if you have a family plan. It is an additional $1,000 if you are 55 or older. 

When TurboTax calculates that you have an overcontribution, you would answer that you will withdraw the entire amount by April 18, 2022. TurboTax will then add the over-contribution as additional income on Schedule 1, Line 8e. 

If TurboTax did not calculate the over-contribution, I would check your entries. You may have inadvertently said you had a family plan when you had self-only coverage, or if you were not covered all 12 months, you may have included some months where you did not have coverage. 

@formoey

[dmertz]

When you visit the HSA section of TurboTax and TurboTax indicates that you have an excess HSA contribution of $800, 2021 TurboTax will give you the option to select, "OK, I'll withdraw the full $800 excess contribution by April 18, 2022."  Selecting this causes TurboTax to include the $800 on Schedule 1 line 8e.

[formoey]

@RaifH The issue is, TurboTax isn’t identifying my overpayment / does not have this scenario. I got married last year and my now-husband had an FSA. Although I had a HDHP all 12 months, I cannot contribute to an HSA while we have an FSA. So, based on the number of months we were married, i have an excess contribution to my HSA of $800 that I need to account for.

[RaifH]

You are correct, if your husband's FSA is not eligible for one of the exceptions, you can't contribute to an HSA for those months. In that case, mark yourself as having no coverage for the months where you had the FSA. TurboTax should then calculate the same over-contribution and report it properly once you tell the software that you will withdraw/have withdrawn the amount. 

If you previously reported that you had coverage all year, you can change your answer to I had different plan types at different times of the year on the Were you covered by an HDHP in 2021? screen. You can then select your coverage for the months you were not married and select None for the months that you were covered by your husband's FSA.