Smart Check on Form 8889-T: Line 12 Wks, line B

[spkndbcky]

Most questions about this error have to do with numbers getting "stuck" and having to re-enter.  However, in my case I really do need to enter an amount greater than the excess contribution.  The reason being, we had two different HSAs and due to a miscommunication I was given an incorrect amount for my spouse's HSA.  Thinking we grossly over contributed, I moved all the money out of mine into 2025.

So, is there any way past that error?  Example scenario:  the calculated excess is $200 but $500 is entered because that is what was actually moved into the next year (2025).

[BillM223]

If you have read about numbers being "stuck", I assume you have read about the "HSA RESET". Although it is a certain amount of work, it will be faster and more certain than going through the interview over and over hoping to get it right. 

Just remove all HSA data as shown below. 

HSA RESET

***Reset***

1. make a copy of your W-2(s) (if you don't have the paper copies)

2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen)

*** Desktop***

3. go to View (at the top), choose Forms, and select the desired form (1099-SA (if one), 8889-T, and 8889-S (if one)). Note the Delete Form button at the bottom of the screen.

*** Online ***

3. go to Tax Tools (on the left), and navigate to Tools->Delete a form 

4. delete form(s) 1099-SA (if one), 8889-T, and 8889-S (if one)

5. go back and re-add your W-2(s), preferably adding them manually

6. go back and redo the entire HSA interview....

[spkndbcky]

This seems like a canned response.  Please re-read my message.  And I tried deleting the forms and they just go into some sort of incomplete state and don't really reset anything.  Thanks.

[spkndbcky]

@BillM223 - any additional insight given my situation as explained?  Thanks.

[BillM223]

Well, of course it's a canned response...one that I wrote several years ago in response to a number of HSA issues in how the TurboTax product works in the HSA space.

"And I tried deleting the forms and they just go into some sort of incomplete state and don't really reset anything"

Hmmn, could you please be more specific? What did you actually do, and did you do the HSA RESET?

The reason I have you delete the W-2 is because so long as the W-2 with a code W in box 12 is in the return, then when you delete form 8889, it will reappear in a second.

If you do the first half of the HSA RESET (deleing the forms), and the 8889 won't go away, then tell me because there is a very rare case where another form will force the creation of the 8889.

[spkndbcky]

I went through your process again in detail, and while it does reset the HSA interview, it does not fix the problem.  I am unable to enter an amount larger than the calculated excess contribution. 

While it is nice TurboTax does good error checking, in this case it is preventing me from entering the actual amount that has been rolled over to 2025 without that error or warning, which I assume will prevent me from e-filing.

[BillM223]

You are not allowed to enter a different excess contribution amount than what TurboTax calculates. I did not realize that you were trying to do that.

So, if I understand you correctly, your real issue is that TurboTax is calculating an excess of $X, but you have already withdrawn $Y  (Y is greater than X)..

The HSA is not an ordinary savings account from and to which you can willy-nilly take money out. If you had $X excess contributions, then that is all you were allowed to take out as excess contributions. The rest is a distribution not for medical expenses.

The "solution" for this situation is to take the amount that you withdrew in excess of the excess contribution and apply it to medical expenses in 2024 and not use the HSA until this accidental withdrawal is used up. Then you can truthfully say that all of the 1099-SA distribution was for qualified medical expenses. 

This is possible because you are allowed to take distributions to pay for medical expenses (after the start of the HSA) that were not reimbursed by insurance or the HSA. The IRS has not put out strict time lines on the activities, so if you have a distribution and then pay for medical expenses, you could make the argument that this is all right.

In this case, it would be very important to document what you did, in case anyone ever asks.

If you cannot apply to the excess of $Y minus $X, then you would have to report this part of the distribution as not for medical expenses, which is added to your income and penalized 20%. Thus you are highly motivated to keep the list pf medical expenses and where they were paid from.

If you are in this last situation, come back and tell us and we will make some suggestions on how to handle it.

[spkndbcky]

The overestimated excess was not taken out of the HSA.  It was rolled into 2025.  So, it remains in the HSA but now will appear as a contribution (or rollover) for this year instead of 2024.

Unfortunately the way this occurred is I was given an incorrect contribution amount thinking we had overcontributed more than we actually did.  So I rolled it over, which is one of the options in the case of an overcontribution.

[BillM223]

It is not clear to me what the HSA custodian actually does when they "roll over" an amount from 2024 to 2025. After all, you have only the one HSA , and the money did not move. The carryover (the IRS term) is more on the tax returns. On your 2024 return, you pay a 6% penalty on the carryover amount, and, as you note, on the 2025 return, TurboTax will try to apply the carryover as a "personal contribution" on line 2 of the 8889, in order to use it up.

In any case, I have given you the instructions to work through this issue in my March 19th post.

[qdtbtax]

@BillM223 I'm also having the same issue (excess of $X, but already withdrawn $Y), question regarding your "solution": what exactly should I do in 2024 tax return and in 2025 tax return respectively? 

My understanding is in 2024 tax return I should only report $X excess contribution withdrawn.

In 2025 tax return I need to report $Y-X as distributions(with medical expenses), is that correct? But I guess I will receive 1099-SA with $Y and distribution code=2, right? Will that be an issue? 

Thanks.

[BillM223]

My understanding is in 2024 tax return I should only report $X excess contribution withdrawn.

TurboTax will report that you have withdrawn the $X, if you answer the excess contribution screen with "you will withdraw the full amount" which is $X in this case.

In 2025 tax return I need to report $Y-X as distributions(with medical expenses), is that correct? But I guess I will receive 1099-SA with $Y and distribution code=2, right? Will that be an issue? 

If you can collect and document in 2025 medical expenses that are not reimbursed by your HSA or insurance, then you can do what I described above. But to make this work in TurboTax, you will need to 

1. alter the data on the 1099-SA

2. Create a pseudo 1099-SA to describe the distribution of the amount of $Y less $X.

To do #1, change the box 1 amount (the distribution) to be only as much as TurboTax tells you the excess actually is. Leave the earnings alone because they were sent to you so you should pay tax on all of them.

To do #2, enter an new 1099-SA whose box 1 amount is the difference between $Y and $X, whose box 2 amount is zero, and whose box three amount is "1". In the interview after you enter it, the answer to the "did you use this for medical expenses?" depends on how many medical expenses you have been able to document by the time that you do your next return as being covered by this amount.

As I noted elsewhere, since you are altering documents copied to the IRS to try to come to an equitable situation, please document everything you are doing and why. We are not able to point to specific examples by the IRS for this situation, so any defense would be that you tried the best you could to rectify the situation. Then bring this documentation out if anyone ever asks any questions.

[qdtbtax]

@BillM223 thanks for the reply. 

I just asked my HSA custodian, they said that I can still make a contribution of $Y-X for 2024, will that be an option for this issue?

If that can work, in turbotax I should add $Y-X as additional HSA contribution and make $Y as excess contribution withdrawn?

Thanks!

[BillM223]

So you are saying that you want to deliberately increase the excess contribution calculation by TurboTax to where it matches $Y, so the excess will be correct? 

Well, this is surely not what the IRS had in mind...

You will add this contribution as a "personal contribution". Add it first in TurboTax, to see if you get the results you want, then if you do and the HSA custodian is willing, then go for it...

Oh, and remember to do this before April 15th AND to tell the HSA custodian that this last contribution is for 2024 (otherwise, they will assign it to 2025).

Again, document document document so that if anyone ever asks, you can refer to exactly what you did and why.