Turbo Tax adds HSA income to my Other income field in 1040. I thought until $3400 per year HSA contributions are tax free. Any reason why this happens ?

[MichaelDC]

In most cases, your HSA contribution has already been reported in Box 12 of your W-2 with code W: Employer Contributions to Health Savings Account.

Despite the misleading name, code W reports both your and your employer's contribution. (If you think the name is confusing, think of it as just "Contributions to Health Savings Account".)

A common error that usually results in excess HSA contributions, which are taxable with a penalty, is if you, on the Let's enter your HSA contributions screen, accidentally duplicated the amounts already reported in the first line, contributions from Box 12 of your W-2.

For example, if you have $3650 on your W-2, Box 12 (Code) and also entered $3650 separately on the Let's enter your HSA contributions screen, that would equal $7300 which is $550 over the maximum allowed HSA contribution for a family plan ($6750).  This results in the Form 5329 (Additional Taxes).

This should remove Form 5329 generated by the above-described error.

Double check your W-2. If you have an entry in Box 12 with a code W, then go to the HSA Contribution screen delete the entry, unless you made other HSA contributions besides through your work.

Please follow the instructions below for editing your HSA contributions below if you are using TurboTax Online (except Home & Business version):

1.       Click on Federal

2.       Click on Deductions & Credits

3.       Look in your list for HSA, MSA Contributions and go to step 6; otherwise, continue to step 4

4.       Click on Jump to full list

5.       Click Show more next to Medical

6.       Click Start/Edit next to HSA, MSA Contributions

7.       Follow through the prompts, when you get to the screen that says Enter Your HSA Contributions, you can put additional contributions made after-tax from your own funds (take-home pay, savings, etc.) as All Other Contributions.

8.       This page will automatically pull in your W-2 contributions from you and your employer that were pre-tax.

9.       Complete the rest of the related interview questions

[kangkang79]

i don't think turbo tax solved this issue in 2020. I made HSA contribution of $5350 on my own money and it is coded as "w" in box 12 of W2 (employer contribution). My actual employer contributed "$0". Then I found this post to further fill 1099SA and the 8889 was generated, which did a math of $7000-$5350 = $1650 as my other income, which needs to be taxed at 6%. the whole process doesn't make sense. I think my entire $5350 HSA contribution should be tax free.

[AmeliesUncle]

@kangkang79 

1. Which lines of the 8889 are you looking at that shows those numbers?
2. Does your tax return also have a form 5329, with amounts in 42-49?
3. Making a HSA contribution THROUGH your employer is still considered an "employer" contribution.  Do NOT enter your HSA again in the HSA section.  ONLY enter it by entering the code "W" on your W-2.
4. You still need to go through the HSA section to answer the other questions, such as indicating you did not have other health insurance.

[DavidS127]

When you get an unexpected “Other Income” with either an HSA contribution or an HSA distribution (Form 1099-SA), here are the things to check:

1. Make sure you haven’t added your HSA contribution twice.  If your HSA contribution was made at work, it should be in Box 12 of your W-2 and is automatically counted when you enter your W-2 in TurboTax.  You will only add additional HSA in the Medical section if you made additional HSA contributions that was not through your employer.
2. For HSA distributions, you must use the distribution for qualified medical expenses, or it is taxable.  After you enter your 1099-SA form, you’ll be asked “Did you spend all the money you took out on medical expenses?  If you answer No, the portion you didn’t spend on medical expenses is taxable income. 
3. You must be enrolled in a high deductible health plan (HDHP) to open an HSA and use it tax-free for medical expenses.  Make sure you answer the HDHP questions in TurboTax correctly.

[vman1]

The rules say that I can contribute $3500 to existing HSA for prior year until July, 2020 even if I did not have high deductible plan coverage that year but have it in the current year. There is some caveat about using this money but it does not matter in my case. When I tell TurboTax that I made $3500 contribution for 2019 it considers it as excess and I get charged 6%. I am covered by \high deductible plan in 2020 (but not in 2019). Why is this happening? 

[AmeliesUncle]

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@vman1 wrote:

The rules say that I can contribute $3500 to existing HSA for prior year until July, 2020 even if I did not have high deductible plan coverage that year but have it in the current year. 

---

No, there are any rules that say that.  Can you point out where any rules would say that?

• If you had a HDHP in 2019, yes, you could contribute until the due date of the return (July 15th this year).
• If you had a HDHP by December 1st, 2019, you could be eligible for a full-year contribution under certain circumstances.

Except for that second bullet point above, you need to have had a HDHP for that month in order to contribute to the HSA.

https://www.irs.gov/publications/p969#en_US_2019_publink1000204025

[vman1]

https://ndtco.com/ira-info/contributions/hsa - not an authoritative source, I know.

"You can make a contribution to a new HSA for a given tax year if you open the account prior to April 15th the following calendar year. However, HSA funds may not be used to cover qualified medical expenses incurred prior to the account opening."

[vman1]

My situation is that we switched to high deductible plan in 2020. If allowed, I would love to contribute to HSA for 2019 and take tax break on $3500. We had PPO plan in 2019.

[AmeliesUncle]

Yes, you can make a contribution to a new HSA (essentially a new bank account).  But you still need to have had the qualifying HDHP in that prior year in order to contribute.

[nikkilynne1366]

I have a question.  I had a regular employer sponsored health insurance plan in 2021 and switching to a HDHP for 2022.  I opened an HSA in December 2021 and deposited $25 to open it at the time.  How do I handle this on my taxes?

[DaveF1006]

It depends. Was the $25 deposit a direct donation out of your own pocket or was it a payroll deduction reported by your employer on a W2?

If reported on a w2, you really need not do anything. If you sent a check however to the trustee of the account, then do the following.

1. Log into Turbo Tax
2. Go to federal>deductions and credits
3. Medical>HSA, MSA Contributions>start
4. As you navigate through the screens, it will ask you how much you contributed in 2021. Here is where you will record your $25.

[nikkilynne1366]

I sent a check.  Thank you for the advice.  I was afraid I messed up since the HDHP was not effective until January 1, 2022 and I opened the HSA in December 2021.