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gocharliegirl
New Member

Why am I being told to spend about $1,000 dollars of my HSA before April 17th or I will be taxed 6% on it?

Why am I being told to spend about $1,000 dollars of my HSA before April 17th or I will be taxed 6% on it?

1 Best answer

Accepted Solutions
BMcCalpin
Level 13

Why am I being told to spend about $1,000 dollars of my HSA before April 17th or I will be taxed 6% on it?

You have evidently indicated to TurboTax that you made excess contributions to your HSA. In this case, you would be asked if you would withdraw (NOT SPEND) the excess from your HSA before the due date of the return, to fix the excess contribution.

It happens that the taxpayer can accidentally indicate an excess contribution. Read the points below and see if they apply to you. Otherwise, if you really do have an excess, contact your HSA administrator (before the due date of your return) and ask for a "withdrawal of excess contributions" (that is, you can't spend from your HSA to satisfy the excess). Remember that the excess is an excess over the annual HSA contribution limit, not an excess amount in the HSA (there is no limit to how much you can have IN an HSA).

***

 

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

 

As you probably know, the maximum limits in 2019 are:

  • $3,500 - individual with self-coverage
  • $7,000 - individual with family coverage
  • If the HSA owner is 55 or older, then you add $1,000 to these amounts.

 

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced.

 

There are several major culprits for excess contributions (other than just actually contributing more than the limit).

 

First, if you did not complete the HSA interview - that is, go all the way until you are returned to the "Your Tax Breaks" page - the limit still might be set to zero, causes a misleading excess contribution message.

 

There are questions all the way to the end of the interview that affect the annual contribution limit.

 

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.

 

Normally, any employee who made contributions to his/her HSA through a payroll deduction plan has the contributions included in the amount with code "W" in box 12 on the W-2. This is on the first line on this screen. Don't enter the code W amount anywhere on the return other than on the W-2 page.

 

Third, if you weren't in HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2019?".

 

Fourth, if you had a carryover of excess contributions from 2018, then this carryover is applied to 2019 as a personal contribution, which could cause an excess condition in 2019 as well. But note: if you had an excess contribution in 2018 but cured it by withdrawing the excess in early 2018, then do NOT report an "overfunding" on your 2018 return.

 

Fifth, the Family limit ($7,000) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,000 to his/her HSA and the other contribute $3,500 to the other HSA – the $7,000  limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,500).

 

[Edited 3/19/2020 2:27 pm CDT - updated list]

View solution in original post

1 Reply
BMcCalpin
Level 13

Why am I being told to spend about $1,000 dollars of my HSA before April 17th or I will be taxed 6% on it?

You have evidently indicated to TurboTax that you made excess contributions to your HSA. In this case, you would be asked if you would withdraw (NOT SPEND) the excess from your HSA before the due date of the return, to fix the excess contribution.

It happens that the taxpayer can accidentally indicate an excess contribution. Read the points below and see if they apply to you. Otherwise, if you really do have an excess, contact your HSA administrator (before the due date of your return) and ask for a "withdrawal of excess contributions" (that is, you can't spend from your HSA to satisfy the excess). Remember that the excess is an excess over the annual HSA contribution limit, not an excess amount in the HSA (there is no limit to how much you can have IN an HSA).

***

 

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

 

As you probably know, the maximum limits in 2019 are:

  • $3,500 - individual with self-coverage
  • $7,000 - individual with family coverage
  • If the HSA owner is 55 or older, then you add $1,000 to these amounts.

 

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced.

 

There are several major culprits for excess contributions (other than just actually contributing more than the limit).

 

First, if you did not complete the HSA interview - that is, go all the way until you are returned to the "Your Tax Breaks" page - the limit still might be set to zero, causes a misleading excess contribution message.

 

There are questions all the way to the end of the interview that affect the annual contribution limit.

 

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.

 

Normally, any employee who made contributions to his/her HSA through a payroll deduction plan has the contributions included in the amount with code "W" in box 12 on the W-2. This is on the first line on this screen. Don't enter the code W amount anywhere on the return other than on the W-2 page.

 

Third, if you weren't in HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2019?".

 

Fourth, if you had a carryover of excess contributions from 2018, then this carryover is applied to 2019 as a personal contribution, which could cause an excess condition in 2019 as well. But note: if you had an excess contribution in 2018 but cured it by withdrawing the excess in early 2018, then do NOT report an "overfunding" on your 2018 return.

 

Fifth, the Family limit ($7,000) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $7,000 to his/her HSA and the other contribute $3,500 to the other HSA – the $7,000  limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,500).

 

[Edited 3/19/2020 2:27 pm CDT - updated list]

View solution in original post

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