My employer made a contribution to my HSA account for 2023 in late 2022, causing my 2022 contribution to go over the limit and resulting in a penalty (as this contribution was reported in my 2022 W2). When reaching out to the employer, they refuse to make the correction as 2022 was when the funds were deposited.
Is there a way to report this situation in my tax form and avoid the 6% penalty?
HSA contributions are allocable to the tax year in which they actually occur, unless they’re made in the following year before the filing deadline, and designated for the previous year (that’s the only exception). So your employer is correct at this point, although there apparently was a miscommunication or a misunderstanding back when it was done.
However, you can still avoid the 6% penalty if you withdraw the excess amount (plus any allocable earnings) by the tax deadline (as the IRS tells us here, in the Form 8889 instructions). And you’ll need to tell the TurboTax program you’re doing so (on the page where it advises you about the excess contribution, it also asks if you’ll be removing it...).
Note that an exclusion from income can’t be claimed for the withdrawn contribution. (This is only half the story, as an exclusion actually can’t be claimed even if it’s not being withdrawn.) And since the excess normally already has been excluded, TurboTax automatically includes it in income at this point.
This usually makes the return correct, but in your case (with possible confusion on the employer’s part), it would be a good idea to verify all of your contributions have indeed been excluded from boxes 1-3-5 of your W-2. (You might have to speak with them to do this, unless you have a wage statement which makes it clear.) If they included any of it in your income, then some entries need to be tweaked to keep you from overpaying and get the correct tax result.
@taxingtaxi, I hope this was clear. This stuff is a little tricky, but be sure to re-post here in the Community for any help needed as you proceed...
HSA contributions are allocable to the tax year in which they actually occur, unless they’re made in the following year before the filing deadline, and designated for the previous year (that’s the only exception). So your employer is correct at this point, although there apparently was a miscommunication or a misunderstanding back when it was done.
However, you can still avoid the 6% penalty if you withdraw the excess amount (plus any allocable earnings) by the tax deadline (as the IRS tells us here, in the Form 8889 instructions). And you’ll need to tell the TurboTax program you’re doing so (on the page where it advises you about the excess contribution, it also asks if you’ll be removing it...).
Note that an exclusion from income can’t be claimed for the withdrawn contribution. (This is only half the story, as an exclusion actually can’t be claimed even if it’s not being withdrawn.) And since the excess normally already has been excluded, TurboTax automatically includes it in income at this point.
This usually makes the return correct, but in your case (with possible confusion on the employer’s part), it would be a good idea to verify all of your contributions have indeed been excluded from boxes 1-3-5 of your W-2. (You might have to speak with them to do this, unless you have a wage statement which makes it clear.) If they included any of it in your income, then some entries need to be tweaked to keep you from overpaying and get the correct tax result.
@taxingtaxi, I hope this was clear. This stuff is a little tricky, but be sure to re-post here in the Community for any help needed as you proceed...