I did not realize that once I signed up for Medicare that I could no longer contribute to an HSA even though I was covered by an employer sponsored HDHP, this resulted in excess contributions for 2021. I cured it by taking a withdrawal on the excess amount and the earnings in early 2022 as taxable HSA distribution and as taxable interest, respectively on my 2021 tax return. Since I am over 65, there was no penalty. What do I do now with the 2022 1099 SA? It shows the gross distribution amount (box 1) and the earnings amount (box 2) with a distribution code of 2. Since I already reported and paid tax in 2021 on both of these items, do I include the 2022 1099 SA with my 2022 taxes? Or will Turbo Tax "know" I already paid it in 2021 since I used Turbo Tax for several years now. Any help would be appreciated. Thank you!
I would treat the earnings as having been reported and taxed in tax year 2021. Do not report them in 2022. As you know, the HSA becomes a funny sort of IRA when you turn 65, in that you can withdraw random amounts for any purpose, and like an IRA, would pay income tax on the distribution.
Just as "earnings" in an IRA are not taxed until they are withdrawn, treat these HSA excess earnings the same way - when you withdrew them, you added them to income and paid tax on them.
Be sure to document what you did and why and save it in your tax files in case anyone ever asks.
You will enter the 2022 Form 1099-SA on your 2022 tax return. TurboTax will know to only report the earnings in box 2 because of the distribution code 2. The earnings have to be included on your 2022 tax return since it was returned in 2022 but the return of the excess contribution amount was correctly included on your 2021 return.
Please see Where do I enter my 1099-SA? for additional information.
Thank you for the instructions. So.....does Turbo Tax give me credit against my 2022 tax return for the interest earned (reported in the 1099 SA) that I already paid in 2021?
To verify, did you also receive a 2021 Form 1099-SA? What code?
An excess contribution on your 2021 tax return triggers that only the excess contribution is added in Other Income on Schedule 1 (assuming this was a contribution reported in box 12 of your W-2 with code W).
If, however, you made the HSA contribution as a direct contribution (not through your employer), then the excess is NOT added to Other Income - rather, the HSA deduction on Line 12 of Schedule 1 (1040) is reduced by the amount of the excess.
The earnings for this excess returned in 2022 shouldn't have been reported on your 2021 tax return.
I did receive 1099 SA for 2021 prior to my discovery about part of my HSA contributions that were not eligible as of September that year when I signed up for Medicaire Part A. (4 months of the year). I had Employee Health Insurance and the HSA which I contributed to for years. At the time, the nice man at Medicaire whom I called with questions in preparation to signup for the following January (2022), didn't mention to me my HSA contributions would be impacted. He suggested I signup for it at the time because it was "Free" and would save me another 45 minute wait time on a phone call later. I was trying to do my research ahead of time with the phone call. It just never occurred to me to ask about impacts on an HSA. But I do take responsibility for not knowing the impacts this decision would cause me.
The 2021 1099 SA shows the total amount contributed for the year plus a small amount that had been added in 2022 for 2021 from my last week's earnings in 2021. It does not have a code.
As soon as I learned of the HSA excess contribution issue, I withdrew the total amount not eligible (4 months worth auto paycheck deduction+ earnings) prior to filing for April deadline in order to cure the error, pay taxes on it (as it would be considered 2021 income that I had earned without the pre-tax privileges I had received) and to avoid any potential penalties. For 2021 filing, Turbo Tax listed the amount under Other income and Adjustments from Schedule 1 line 10 (and 8 e Taxable Health Savings Account distribution). Because I was over 65 and did not use the excess contribution for medical purposes, it was my understanding to treat it as income for 2021 (which technically it was since it came from my payroll earnings in 2021) , to pay taxes on it as well as the earnings from interest on it. Since I also had pre-tax earnings on the interest which I wasn't entitled to, Turbo Tax had the interest listed under Wages, salaried, tips, etc 2b Taxable Interest. This being a year ago, I am simply guessing that perhaps I entered the earned interest manually. I really don't recall. In any event, I would not receive an amended 1099 SA for 2021 from the bank. There would not have been enough time prior to filing. So...since I reported the income for 2021 and interest earned, paid the tax on both, I am confused about how to handle the 2022 1099 SA without adding income and interest already reported and paid in 2021 tax filing.
Also, the contributions were auto deducted from my payroll by my employer. The withdrawal distribution was sent directly to me.
I apologize for the lengthy explanation above. Based on your explanation, because the excess was included in my W-2 with a W code in box 12, I did handle the excess contribution appropriately and reported it in 2021. I guess the issue left is the interest I earned which is what is now on the 2022 1099SA. I thought I was suppose to pay it last year along with the excess (which I did.) So since my 2022 SA 1099 SA shows the interest earned in 2022 as income, is there a way to show I already reported and paid it last year so I don't get double taxed again this year? Thank you for any ideas on a resolution of this.
If Form 1099-SA for 2022 shows interest income, you will be taxed on that amount since you received it in 2022.
However, if you did not receive that interest, either in cash or credited to your HSA, you may need to contact the HSA custodian for both clarification and a corrected 1099-SA if necessary.
Thank you for the help. I understand that I would be taxed on interest income showing on a 1099 SA. However, when I had the excess distribution taken out in early 2022 (but after the 1099 SA for 2021 was already generated) for the excess distribution in 2021, I also took out the earnings as required by IRS at the same time. As such, I reported both (the distribution and earnings) and paid tax on both in my 2021 filing. My question is there a way to show the interest was already reported and paid in 2021? Or do I just not report it in 2022, since it was already paid in 2021? Thank you for the assistance.
I would treat the earnings as having been reported and taxed in tax year 2021. Do not report them in 2022. As you know, the HSA becomes a funny sort of IRA when you turn 65, in that you can withdraw random amounts for any purpose, and like an IRA, would pay income tax on the distribution.
Just as "earnings" in an IRA are not taxed until they are withdrawn, treat these HSA excess earnings the same way - when you withdrew them, you added them to income and paid tax on them.
Be sure to document what you did and why and save it in your tax files in case anyone ever asks.