Turbo Tax deluxe 2021 incorrectly fills out Form 8889 for excess HSA contributions made in the prior years

[uma_panda]

I believe Turbo Tax deluxe 2021 incorrectly fills out Form 8889 for excess HSA contributions made in the prior years.

My situation:

I have an excess HSA contribution from prior years in the amount of $3100

My employer contributed for me $500 in 2021

I contributed $0 and want to deduct the $3100 I contributed in excess prior to 2021.

When I answer the questionnaire in Federal Taxes > Medical > HSA, one of the questions is:

- Enter HSA contributions (Don't include contributions from cafeteria plans, IRAs or rollovers from other health plan accounts )

This is essentially what the software puts into line 2 of form 8889.

If I answer $3100 here, then TT Deluxe at the end of the questionnaire doesn't negate the $3100 in excess contribution from prior years and I have to pay the penalty (6% via Form 5329) on $3100 again. 

If I answer $0 here, then on line 13 TT Deluxe enters $3100, however the description for line 13 explicitly states (emphasis is not mine)

"HSA deduction. Enter the smaller of line 2 or line 12 here and on Schedule 1 (Form 1040), Part II, line 13 13 Caution: If line 2 is more than line 13, you may have to pay an additional tax. See instructions."

This mismatch (line 2 is $0, but line 13 is $3100) will result in IRS detecting the error and denying the HSA deduction. I know because I'm dealing with the same problem for 2020 tax year.

Please let me know how I can deal with this problem.

One workaround that came to mind, is to answer $0 to the question above, then manually overwrite line 2 in Form 8889 to $3100. I'll have to mail in my return this way.

[Mike9241]

I believe that is the correct reporting. According to the line 2 instructions only include contributions made in 2021 or by 4/18/2022. in your return you'll have form 5329 which will show the excess contribution carryforward of $ 3100 from 2020. so I would say the real problem is not Turbotax but the IRS on how to show your using the prior year carryforward.  

if you override line 2 then you'll have to mail in your return. and it won't match with the tax form the HSA custodian sends to the IRS 5498-SA

i went back to 2019 and Turbotax consistently doesn't show the carryforward on line 2 

if you want to try to see if this works - no notice from the IRS - is to delete the HSA carryforward from the carryforward form and then show this amount on line 2.  this will allow you to e-file since you'll not have an override but as I stated above line 2 won't match with the tax form the HSA custodian sends to the IRS

[uma_panda]

Thanks for your response and suggestions.

I don't disagree that the problem lies somewhere in IRS forms and instructions. They provided detailed steps and a specific form on how to tax the excess contribution but not on how to correct it. I've spoken to a number of IRS representatives and none of them could tell me how to address this issue so I mailed all my forms and a detailed letter of explanation. Just yesterday I received a response from them which is essentially  - "Form 8889 line 2 is zero, so you can't put more than zero in line 13 and hence you don't get a deduction". 

I also believe that TT should have a validation on the mismatch to catch this problem quicker, so that the filler is aware and attempts to correct it prior to filling their taxes.