Should excess HSA employer contributions be on Form 1040 line 1h instead of Schedule 1 line 8f?

[dmertz]

@BillM223 , TurboTax puts excess HSA employer contributions on Schedule 1 line 8f.  Because these are normally excluded from wages in box 1 of the employee's W-2, shouldn't the excess actually be reported on Form 1040 line 1h the same as excess deferrals to a 401(k)?  I've been unable to find anything definitive in the IRS instructions.  There is no line on Form 8889 that specifically identifies excess contributions and the instruction for Schedule 1 line 8f only mentions including amounts from Form 8889 lines 16 and 20 and makes no mention of excess contributions.

[BillM223]

@dmertz 

As usual, your tax research is spotless. Yes, the instructions are just as you say - the excess employer contributions are "homeless" in that the IRS doesn't address them any more than they address what to do with excess HSA contribution carryovers on the 8889.

The thing is about the instruction for Line 1h is that they are explicitly for retirement plans, as I am sure you saw. On the one hand, you could argue that the HSA is one of the best retirement plans around. On the other hand, I saw somewhere a court ruling (Ohio?) about HSAs, that they were not to be considered retirement plans because the IRS lists all the retirement plans somewhere (sorry, memory fails me), and HSAs were not in the list. The court case was about dividing property in a divorce case, and in that state, retirement plans were divisible between the two parties, but the HSA was considered the sole property of the party that owned the HSA. I wish I remembered if they said anything about IRAs; it would seem that they would follow the route of the HSA and not that of the retirement plan.

I will add this to the list of things to consider for processing HSAs; thank you for the observation.

[BillM223]

@dmertz 

By accident, I find the search that gave me a list of 11,000+ court cases about HSAs.

https://www.govinfo.gov/app/search/%7B%22offset%22%3A1%2C%22query%22%3A%22collection%3A(USCOURTS)%20...

I imagine that I found the relevant cases in the first page or two, and if, so, then it may have been a bankruptcy case. Well, for another day.

[dmertz]

The instruction for Form 1040 line 1h indicates items the must be included as Other Earned Income, but I don't see that as an exhaustive list.  I compare it to excess deferrals only to point out that had the money not been taken out of the pay that it would make sense to me that the excess should appear on line 1h because it did not otherwise appear on line 1a.  The Items identified for inclusion on Schedule 1 line 8f are items that that are not  excess contributions and are not from compensation.

Perhaps my concern is even more basic.  Instead of moving the excess HSA contribution from Schedule 1 to Form 1040, might it make sense to include the code-W amount, excess or not, in compensation that will support an IRA contribution (although I don't imagine the IRS would see it this way)?  It seems inequitable that someone who has on their W-2 $2,000 in box 1 and $1,000 with code W in box 12 can only make a $2,000 IRA contribution while someone who has $3,000 in box 1, nothing with code W in box 12 and makes a $1,000 personal HSA contribution is permitted to make a $3,000 IRA contribution.  Why should it matter whether the HSA contribution is made through the employer or not?  (Maybe it's a bad idea to make HSA contributions through the employer.)

[dmertz]

On rereading the instructions for 2023 Form 8889, I did find that it says that excess employer contributions must be included in "Other income," which would imply Schedule 1 rather than as "Other earned income" on Form 1040.  However, this instruction was written before line 1 of Form 1040 was split up in 2022.