Why is TurboTax telling me I exceeded my HSA contribution limit, when I am under the amount listed of $7750?

[cwulfsberg]

-Married Filing Jointly

-Contributed $5200 to wife's HSA; she is on a family HDP (covers her and 24-year-old daughter)

-Contributed $2400 to my HSA; I am on an individual HDP

-We both turned 55 in 2023

We should be able to contribute $8750 combined, but TT is telling me I contributed $4250 more than I was allowed, and that I need to allocate $1400 excess contribution between us.

The only thing I can think of is that my wife's contributions were payroll deductions, and show up in her W-2 in Box 12 with a W code.  It seems confusing to have the same code for employer contributions and payroll deductions.

[BillM223]

Several thoughts:

1. The $1,000 add-on for being 55+ is prorated for the first year you turn 55. Think of it as $83.3 a month for each month you are 55. So if your wife turned 5 in 2023, your limit is not quite $8750.

2. It is OK that her contributions are payroll deductions - in fact is more common than direct contributions.

3. Please tell me what month your spouse turned 55 in, and also her code W value on her W-2 in box 12, and also any contributions you made (direct or payroll) to your HSA.

4. With the numbers you have given us, I can't quite figure out what TurboTax is thinking, but I have done HSA answers for 8 years, so we will be able to figure it out, with enough input.

5. It looks like you already realize that your Self-only HSA doesn't really count for the limit - good for you.

I look forward to hearing from you.

[cwulfsberg]

My wife turned 55 in February '23.   I turned 55 in September '23.  But even if we didn't turn 55 yet, we're still under the standard $7750 contribution limit. by $150.

Her 2023 W-2 hasn't dropped electronically yet, but her total payroll deductions to her HSA were $5200 for the year, so that's what the 12-W value should be.

I contributed $2400 to a self-funded HSA.

When I went back in and looked at the HSA summary, the $5200 of her payroll deductions are categorized as "tax-free employer contributions".  That money was from employEE contributions, not employER.  So, is my wife's employer screwing up by putting that code on her W-2?

Also, since I posted this, went back and looked at my 2022 return (filed w/ Turbo Tax) and on Form 1040 Schedule 1 Line 8z, there are excess employer contributions.  So, I got bit by this last year and didn't catch it.

[BillM223]

First, let's clear up something. Any contribution made through your wife's employer - whether by the employer or by your wife through payroll deduction - is called "employer contribution" by the IRS, and by extension, also by us. The terminology seems confusing, but it is this way because all "employer contributions " (see above) are treated the same way. They all appear with the code of W in box 12 on her W-2, and if there are excess contributions from this, they are added back to your income.

So please understand that TurboTax is handling her contributions correctly.

On the other hand, any contribution made directly to the HSA (not through the employer) is a "personal contribution". This should NOT include any payroll deductions because they have already been accounted for in the code W amount(s).

You should review the first Example on page 7 of Pub 969. This shows how the Family HSA contribution is to be handled - note that the Self-only for your HSA is ignored. Please note that many of the examples are still using the 2022 numbers.

The next thing to note is that the Family limit for your wife's HSA is $8,583 - this is $7,750 plus the prorated $1,000 "bonus" for being 55. She became 55 in February (I am assuming she did so after the 1st), so that is 10 months (March through December) at $83.33.

I can't make sense of "but TT is telling me I contributed $4250 more than I was allowed, and that I need to allocate $1400 excess contribution between us."

Given your confusion with employer contribution, is it possible that you entered your wife's contribution with code W on her W-2 (which is correct), and then repeated the $5,200 as a "personal" contribution because you thought the payroll deduction should have been personal? If so, please go back into the HSA interview and removed the $5,200 as a personal contribution and ass what happens.