Can I contribute the whole $3350 to my HSA if I leave before the end of the year?

[Leonard1965]

I was laid off 8/17/16. Does that effect how much I can put in to the HSA for the high deductible health plan? I put in the full $3350 (for individuals) at the beginning of 2016. If I can't put in the full $3350 now, what do I need to do in Turbotax and with the $3350 I contributed. If it matters, the HDHP was paid for through 10/31/16 by my former company and I paid myself for a different health plan for November and December.

[ghost · Accepted solution]

Layoff date is not important. It's the number of months that you were covered by a HDHP that matters.

"the HDHP was paid for through 10/31/16 by my former company and I paid myself for a different health plan for November and December."

If you were covered by a HSA for all of 2016, you can contribute the full $3350.

If the "different health plan" for November and December was not a HDHP, then you are only permitted 10/12 of $3350 ($2791.67). You must withdraw $558.33 to avoid a penalty for excess contribution. The withdrawal must be an "excess contribution withdrawal". Contact your HSA administrator to request the withdrawal.

[ghost]

Turbotax will be able to create a proper tax return whether you withdraw the excess or not. The interview will ask the pertinent questions to cover your situation.

[Leonard1965]

Thank you SO much, this was a great answer!  I had an HSA overpayment of $57 last year, I may be able to find the forms, it was NOT easy to correct with the HSA administrator.  Also if you subtract 3350-$2791.67 it's $558.33, and I only have $388 left in the HSA account, so not sure how that will work out when I go to withdraw the $558.33.  Any thoughts?

[ghost]

You withdrew the $57? If not, then it was applied to 2016 which makes your 2016 total $3407, not $3350. It carries forward.
If you end the year without withdrawing the excess, the program will ask your end of year balance and make the necessary calculations to assess penalty if any of Form 5329, part VII.
It's not uncommon for the balance to be insufficient to cover the excess. So it's not a problem for the program to handle.
The penalty for excess is 6% annually on the excess amount. So for $500 (more or less), the penalty is $30.

[Leonard1965]

I checked, I have all the forms from last year I can use this year to withdraw the excess.  Which section interviews for this?  The healthcare section I assume?  The only place I see this on a form is on form 8889 from last year.  Do I need to report last years $57 of excess contributions on this year's return?  Will that all be covered in the interview?  I'll start to research it if you're not sure!

[Leonard1965]

I didn't see your last comment until just now, thank you SO much for even telling me what the penalty would be.  The dates on the forms show I withdrew the $57 last year on 1/18/16.  Not sure if that was too late to avoid the penalty, or not.  But of course that was only $57 total, not the $558 problem this year!

[ghost]

The section you want is under deductions (not healthcare). Look for HSA/MSA Contributions.
Form 8889 is the HSA reporting form. It has three parts. Your contributions will be in part I.
The program will ask if you had excess in 2015; you will answer YES, then enter the amount ($57). The $3350 should come in automatically from you Form W2 (box 12, code W). The program will also ask about HDHP coverage. You will be required to fill out a table indicating the months you were covered by HDHP. In your case it will be 10 months. The program will calculate the limit of $2791.67 and see that there is excess. You will be asked if you withdrew excess. Assuming you do this before April filing date 2017, answer yes and put in the amount (even if less than the actual excess). I haven't been through this process as yet for 2016 but this is basically how it has worked in the past. BE Aware that the program is still being updated frequently so you may find that some sections are not full function.

[ghost]

You should have acknowledged the $57 withdrawn on your 2015 tax return which would have avoided any penalty on that amount.

[ghost]

Did you have a penalty in 2015 of Form 5329, part VII? It's only $4.

[Leonard1965]

What I did was start playing with the program early.  I'm still waiting for the official W2 and other forms of course.  I'm in no huge hurry to file this year.  So far, the only place I can find in last years return is on form 8889 where I reported that I withdrew the excess $57, I'm still not sure if I did that right?  I know I correctly left the W2 block as $3407, I did not change it to $3350 or play any games that way.  So are you saying I would withdraw the remaining balance of $388 and take the penalty on the rest of the $558-388 = $170 ?

[Leonard1965]

Thank you very much for all the good advice!

[ghost]

Sounds like you handled the $57 correctly from what you've said above.
Yes. Because you have insufficient balance the penalty is adjusted.

Keep in mind that since your contributions are pretax, any excess was and will added as other income on line 21 of Form 1040 so you pay tax on the excess contributions. Your 2015 tax return should have $57 of line 21.

[ghost]

I'll run a test case tomorrow and report back to you.

[Leonard1965]

Thank you!  I'll look in to line 21 too.  Have a great night!