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marsha_el
New Member

What should I do with the left over money in my HSA

I had an HSA account in 2015 and had $877 left over. I switched to FSA in 2016, but my employer was continuing to withdraw money from my paycheck and was putting it in my HSA account instead of FSA account for 4 months totaling $1350. I have used up $1394 during the last and beginning of this year and now have $833 left. What should I do with the rest of the money? Should I make a distribution to avoid paying 6% tax or hold on to the money and use it to pay for future medical expenses?


1 Best answer

Accepted Solutions
dmertz
Level 15

What should I do with the left over money in my HSA

As I understand it, the issue is what to do about the $1,350 excess HSA contribution for 2016.

Regardless of what you do, your tax return will have to include as Other Income the $1,350 if that $1,350 was excluded from box 1 of your W-2.  Your penalty is based on the lesser of the excess contribution remaining in your HSA or the year-end balance of your HSA.  With only $833 remaining in your HSAs on December 31, 2016, your penalty is 6% of $833 = $50.  To eliminate that penalty entirely, you'll have to obtain a return of excess contribution of the remaining amount in the HSA.  If you do not request a return of excess contribution and the $833 remains at the end of 2017, you'll have another $50 penalty for 2017.

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3 Replies
dmertz
Level 15

What should I do with the left over money in my HSA

As I understand it, the issue is what to do about the $1,350 excess HSA contribution for 2016.

Regardless of what you do, your tax return will have to include as Other Income the $1,350 if that $1,350 was excluded from box 1 of your W-2.  Your penalty is based on the lesser of the excess contribution remaining in your HSA or the year-end balance of your HSA.  With only $833 remaining in your HSAs on December 31, 2016, your penalty is 6% of $833 = $50.  To eliminate that penalty entirely, you'll have to obtain a return of excess contribution of the remaining amount in the HSA.  If you do not request a return of excess contribution and the $833 remains at the end of 2017, you'll have another $50 penalty for 2017.

MichaelDC
New Member

What should I do with the left over money in my HSA

You can keep money in your account for as long as you want without penalty. Unlike an Flexible Spending Account (FSA), if you don't use it, you DON'T lose it. It some respects, it's a good extra retirement savings fund. It can even be inherited by your spouse or heirs.

As long as you continued to be eligible (more than likely, seeing that it was a payroll deduction), your HSA contributions are not subject to any tax or penalties. (See the requirements below.) These contributions are probably reported in Box 12 of your W-2 with Code W.

Regardless of how the contributions were made, you will need to go through the HSA section of your tax return to verify that you were qualified to make contributions to the HSA.  Follow these steps to go to that section of your return:

  • On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)

  • This opens a box where you can type in “hsa” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)

  • The search results will give you an option to “Jump to hsa

  • Click on the blue “Jump to hsa” link and enter your information

This will open a screen with boxes to check that you had a Health Savings Account.  From that point, follow these steps: 

  • Click Continue

  • If any 1099-SA information pops up next, click Done to move forward

  • Next you will see an option to “work on your HSA”, click Continue and then answer the question about inheriting the HSA

  • On the screen asking if you need to make any adjustments to your HSA contribution amount, choose Yes, if you made contributions outside of payroll deductions, otherwise choose No

    • Choosing Yes, will open the screen to allow you to enter the HSA contributions that you made on your own from another account

    • Report your contributions in the last field on the screen, “All Other Contributions (i.e. contributions not made by your employer or with payroll deductions)

  • Click Continue and finish any additional follow-up questions. 

If you had a distribution from the HSA (reported on a 1099-SA), enter it following these steps making sure to indicate that the money was used for qualified medical expenses:

Here's how to enter your 1099-SA form:

1.       Open (continue) your return in TurboTax.

2.       In TurboTax search for 1099-SA or 1099SA (lower-case work too) and then click the "Jump to" link in the search results.

3.       On the Tell us about the health-related accounts you had in 2016 screen, check the boxes for the types of accounts you have (these may already be pre-selected based on earlier info you entered).

4.       Click Continue and follow the onscreen instructions to complete the form.

 

Here are the HSA contribution requirements:

  • You must be enrolled in a high deductible health plan (HDHP).
  • You can’t be enrolled in Medicare or another secondary health insurance policy.
  • You can’t be claimed as a dependent on somebody else's return.

marsha_el
New Member

What should I do with the left over money in my HSA

I was NOT enrolled in High deductible plan in 2016 and was not eligible to contribute to HSA plan. Payroll deduction was an error.
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