I added excess HSA by mistake last year, how can I solve it this year?

[yasserak]

Hi

I discovered that I added Excess HSA Contribution in 2022 by mistake. This didn't happen actually. I paid already tax on that excess amount last year.

In 2023, how can I fix that? It is showing now that I still carry the excess HSA contribution and I have to pay 6% penalty on that amount as well.

1- Do I set the 'Excess HSA contributions carryover from 2022 still in HSA account' to Zero 

2- Do I set the 'Amount from 2022 Form 5329, Line 48' to Zero

3- What else should I do?

Thank you!

[BillM223]

"I discovered that I added Excess HSA Contribution in 2022 by mistake" - What does this mean? You added the excess to where?

"I paid already tax on that excess amount last year." - Which tax? The income tax on the excess that was added by to your Other Income? or some other tax?

"In 2023, how can I fix that? It is showing now that I still carry the excess HSA contribution and I have to pay 6% penalty on that amount as well." - So you carried over the excess from 2022 to 2023 or what? You should have been charged the 6% in 2022 when you did not withdraw the excess in early 2023.

Did you make HSA contributions in 2023? If so, how much? What was your HDHP coverage?

Please do not make any changes to the 5329 or 8889 until we understand what you actually did.

[yasserak]

Thank you @BillM223  for your reply... 

- In 2022, I input wrongly that I made excess (which in reality, I didn't)

- In 2022, I paid a penalty of 6% in the Federal Income Tax

- I carried over the excess from 2022 to 2023 and charged 6% in 2022. In 2023, 

- I did make HSA contributions to the Max Level for a family in 2023.

- Now it is showing that I still have excess from the previous year. 

I hope I explained the situation. My understanding that I need:

1- to do 1040X to amend 2022 to undo the excess reported in 2022 and submit that online. I think I will need to amend 5329 as well to show that there is no excess in 2022.

2- Then I can submit 2023. What I am not sure is how to report that in 2023 (should I put ZERO as the excess contribution from 2022 to fix things since I will do the amendment first for 2022)

Thank you!

[BillM223 · Accepted solution]

"1- to do 1040X to amend 2022 to undo the excess reported in 2022 and submit that online. I think I will need to amend 5329 as well to show that there is no excess in 2022."

You will want to amend the 2022 return to get that 6% penalty back. You will need only to change your entries in the HSA interview to show that you didn't have an excess after all. The 5329 should take care of itself.

Note that if you want the new carryover (or lack thereof) to appear on your 2023 return, you'll need to transfer the 2022 return to 2023 again. Since that would delete any entries you have already made for 2023, you may want to try the two suggestions in #2.

"2- Then I can submit 2023. What I am not sure is how to report that in 2023 (should I put ZERO as the excess contribution from 2022 to fix things since I will do the amendment first for 2022)"

When you go through through the HSA interview on your 2023 return, you should be asked something like, "Did you overfund your HSA in 2022?" First, say "no" and go through the return to see how it turns out. Hopefully that will do it. Otherwise, go back to the HSA interview and answer "yes, then put "0" (zero) as the amount of the carryover and go through the rest of the return, to see if that worked for you.

[ajaggia]

Hello @BillM223 , Hope you're doing well and I am actually in a similar situation this year 🙂

In 2024, when filing my 2023 tax return, I by mistake reported an excess on Form 8889 line 2. I misinterpreted Form 8889 Line 2 & didn't contribute over the $3850 limit to my HSA. All contributions came from my employer (line9). I have my 2023 5498-SA as proof.

So right now, I must :
1. Submit a 2023 1040X ammendment and send my 2023 5498-SA as documentary proof.
When I tried to do this yesterday on 01/15/2025, I was not able to e-file it. Should I wait until 01/27 to be able to do this or should I just paper mail it in now?

2. When doing my 2024 taxes now in 2025, do I just report excess as 0 as carryover from 2023? I am just not sure if I can file my latest taxes until the ammendment is filed and processed.
Should I file an extension this year and wait until the ammendment is processed? Or am I OK to proceed as if the ammendment will be approved?

Thank you so much!!!

[BillM223]

Wait until 1/27 to e-file your amended return.

Should I wait until 01/27 to be able to do this or should I just paper mail it in now?

If you paper file, the processing of the amended return will takes weeks and weeks (i.e., months). If you can e-file the amended return, you should do so.

***

Go ahead and submit your 2024 return now with a zero excess carryover. The processing of each year's tax return is largely independent of other years', so they wouldn't know that you still had a carryover on the books anyway (not for a year or more).

Should I file an extension this year and wait until the ammendment is processed? Or am I OK to proceed as if the ammendment will be approved?

@ajaggia

[ajaggia]

Hey, thank you for the clarifications!!
I will try and e-file my 2023 tax year ammendment on the 27th of Jan.
I saw that date from this blog post : https://blog.turbotax.intuit.com/tax-news/irs-announces-e-file-open-day-be-the-first-in-line-for-you...
For a second, I thought this was because of an issue specific to my application, but I will comment back here in case I still cannot on the 27th.

For this year (filing 2024's taxes), I will move on as if everything was OK in 2023 as per your recommendation. The fact is that I haven't over contributed and I am filing this year as accurately as possible to my knowledge.
Hopefully by this time next year, my ammendment is processed and I get my extra refund back on the 6% and I can just file like I do every year henceforth.

Thank you again!! 😄
This was very helpful no doubt about it. Please let me know if there are any gaps in my understanding if you see any

[ajaggia]

Hello and happy eFile day!

Just a couple quick questions as I wrap things up:
1. As I go through the final screens of the ammended tax return, I keep getting a loop where the TurboTax software keeps asking me to fill this out :

However, I can bypass this by clicking Continue here :

Is this OK? and does doing so preserve my ammendment justification (shown below) :

Lastly, can I only file a federal tax ammendment? If so, to leave my state ammendment unfiled/blank, can I click "File Later", resulting in the screenshot below? :

Thank you once again!!
Please let me know if I was unclear anywhere & I will get back to you with clarifications 😄

[BillM223]

On the first list, you should have been able to click on "None of these apply to me". I don't know why this put you in a loop, but it looks like you found a way out.

Your justification looks fine; honestly, it doesn't have to be real detailed - you mentioning the 8889 is good.

Yes, you are able to file/amend only the federal return, with one LARGE exception. Some states require that you amend the state return if you amend the federal return. This is because changing the federal numbers might change your state numbers.

If the change to the 8889 changes your AGI on the 1040 then I would say, yes, you need to amend your state returns. However, if none of your federal numbers change, I would encourage you to contact your local state tax offices and ask them. This information is not easily found on their websites.