Why does Turbotax show an excess contribution to my HSA when there is not one?

[hbre]

completing the do-over process of deleting and readding back the HSA contributions to the W-2 also changed the amount owed. It seems the amount was acting like it was taxable income instead of non-taxable. 

[BillM223]

One common misunderstanding by taxpayers is that contributions to an HSA are taxable UNTIL HDHP coverage is demonstrated. That is, when the W-2 is entered with its code W and HSA contributions of $X, this $X amount is taxable inside of TurboTax until the taxpayer proceeds to and through the HSA interview to demonstrate not only what type of HDHP coverage the taxpayer had but also how many months the taxpayer had it.

Only then are the HSA contributions deemed to be tax-free. Unfortunately, too many taxpayers don't realize that there are necessary things happening behind the scenes in TurboTax, and by watching the Refund Meter too closely, they misunderstand what TurboTax is having to do.

So it is NOT a bug that the HSA contributions are deemed taxable when the W-2 is entered and after the HDHP coverage has been entered, the "bug" has been fixed; no, TurboTax is working correctly; the problem is that many taxpayers (and a few tax professionals) do not understand how HSAs work.

And saying that TurboTax has a "bug" does not make it so. Far more often it is a case of the taxpayer not understanding what the tax code is doing.

[FredJH]

No, it definitely is a bug when I go through the "interview" and correctly say I have a high deductible plan, and TT says it's not tax deductible until I go back and delete it from my W2, and add the exact same thing right back in. There's zero good reason for that, it's just plain wrong to have to do that. 

Moreover, it's not the only section I had to exit and come back to in order to see values I just entered, including tax deductible cash donations that didn't show until I quit and came back. 

Been using TT for ten years, never seen these issues before. QC has tanked. 

[ebertsj1]

Sorry, but as I recall. I DID do the interview, and NOWHERE did I manually enter my IMPORTED my EMPLOYER W -2 data, BUT, when I reviewed, there it was…shown as NOT from employer w-2.  

[BillM223]

FredJH

"TT says it's not tax deductible until I go back and delete it from my W2, and add the exact same thing right back in." 

That's not what TurboTax is doing. The moment you enter the code W amount in the W-2, the code W amount is considered taxable until you show proper HDHP coverage. You do not have to delete it and re-add the code W amount to get it to be tax-free - you just have to go to and through the HSA interview and show HDHP coverage. And the screen after you show the HDHP coverage, the code W amount is removed from income.

As I noted, many taxpayers don't understand how HSAs work and therefore misinterpret what TurboTax is doing.

[FredJH]

With due respect, you're not reading or understanding what I'm writing.

I import my W2 from a PDF, I review it, and there is $4k shown as going to the HSA. I already know, at this point, that TurboTax is NOT going to show it as tax deductible, that's fine, that's great, I get it.

Later on I go through the "interview" and confirm that I DO have a high deductible plan.

After  the interview, Turbo Tax is STILL saying that I owe taxes on that $4k. That's a bug, like it or not. I've confirmed it's HDHP, and Turbo Tax was STILL SAYING I OWED TAXES ON IT. I'm not sure what I'm doing wrong in explaining it to you - all the conditions had been met.

Then I go to edit my W2; I delete that HSA field... then I manually add it back in. THEN, magically, Turbo Tax says it's tax free.

That's the order of operations.  It's wrong. I shouldn't have to do that. Period. It's a bug.

Similarly, when I added cash donations, they simply didn't appear. I entered one three times, and it wouldn't show. So I saved the progress so far, went to another section, then came back to donations, and my donation was listed three times. This is a bug. You might consider that it's simply a UI issue, but it's still a bug, and it makes it confusing and difficult to finish taxes - the very thing people pay for TurboTax to avoid.

[ebertsj1]

Yes, this is exactly my experience...that is, answered all the questions, still assigned all from my W2 to taxable

[rufus609]

I've had this problem two years in a row and this screen is not clear.

You say

"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."
This should clearly state "did you contribute anything in excess of the W code on your W-2?"  It just asks for the contribution amount, so I looked on my W-2 and entered that amount.  Then it is telling me I have an excess contribution subject to a 6% tax, which is wrong.  

Now I know how to fix it, but the dialog in this section needs to be clarified.  I had the same thing happen last year and I thought "oh well, what can I do about it" and paid the 6% tax when I did not need to do so.

[newbie99]

I had the same problem.  I follow the advice and went through the interview and fixed the problem.

I looked at my form 8889 before and after the fix.  The major difference is in cell #3.  Before the fix, cell #3 was $0.  After the fix, cell #3 is $4,150.  For some reason, if you don't go through the interview, TTX will fill in $0 in cell #3.

[humanist0810]

Refer to @hbre  message. Somehow autoloaded W2's HSA's info was not properly passed to HSA interview. It's apparently TurboTax software's bug. 

[ebertsj1]

According to one guy who seems pretty knowledgeable, the W-2 only records the amount of contributions…NOT whether they are subject to tax, and he then states only bu going thru the HSA interview, which then locks in that one is eligible by virtue of having specific medical coverage does the tax exemption get determined. I personally believe I in fact answered that, YES, I was enrolled in such insurance, but the bug was in not reflecting that. He suggests all of us with this issue simply either skipped the HSA interview, OR, answered it WRONG. I find this hard to believe…

[barristerinky]

Still glitching as of right now  Sat 3/15 at 8:19 pm EST.   It is doing it for self employed folks like me as well...  so it has nothing to do with W2s as I don't get W2s...

[barristerinky]

Since both my wife and I are self employed we each have our own HSA.. when I add mine, no problems.  When I add hers, the glitch pops up and it takes my taxes owed to 3X what they were...   I delete her form manually and back down to the correct amount of taxes owed.

So how about Intuit get their crap together and fix the bug since everyone is experiencing it?   Anyone hear the term "class action" before.   When a bunch of people are filing and getting dinged for a lot more in taxes than they should be, and it is due to Intuit's incompetence with a known issue... that spells class action.   And yes.. I am a lawyer.

[BillM223]

I have not see a real bug in all these comments, no matter how much people want to think that there a problem with TurboTax.

I have been doing HSA questions for 9 years here at TurboTax, and the vast majority of issues that taxpayers have is because they don't understand how HSAs work. 

OK Mr. barristerinky, before you waste a lot of money on some sort of action, humor me and tell me the following:

1. What you think the "glitch is"

2. What type of HDHP coverage do you two have?

3. How many months and which months did you have this coverage?

4. Did you have any carryover of excess contributions from 2023?

5. How many HSAs do you have? Two, right?

5. How much did you (or anyone else) contribute to your HSAs?

[barristerinky]

Thanks for the response..

1. What you think the "glitch is"

Something about where you enter a higher dollar contribution amount for HSA than the 3766 on the second HSA account for my wife.   It somehow then runs up your taxes due..    You enter 3767 and it triples what your taxes owed are.

2. What type of HDHP coverage do you two have?

.

Me.. single member HDHP plan ..  Wife.. family HDHP plan

3. How many months and which months did you have this coverage?

.

Both full year

4. Did you have any carryover of excess contributions from 2023?

No, first year contributing.

5. How many HSAs do you have? Two, right?

Correct, 2.

5. How much did you (or anyone else) contribute to your HSAs?

.

$4150 each... so $8300 total  between my plan and wife's plan.

Thanks.