Excess 2022 HSA contributions withdrawn before April 15, 2023, how to address 2023 1099-SA form with Dist. Code 2?

[Ames_01]

Hello, because of an accidental Medicare enrollment, my husband over-contributed to his employer-sponsored HSA in 2022.   He withdrew the overcontribution in March 2023, just before the filing deadline.  On our 2022 tax return, we reported and paid tax on the withdrawn amount (Form 8889 and 1040 Schedule 1, Additional Income).  There were no earnings, due to a market decline, so we only withdrew the excess contribution amount.  In early 2024, we received a 1099-SA from the HSA custodian, showing the gross distribution amount, no earnings, and distribution code 2.  I can't seem to find a way to enter this into TurboTax.  The TT HSA questions never produce an entry screen for a 1099-SA and never ask if we had earnings.  Will the IRS be expecting this information on our return?  Or, will they match the distribution amount on the 1099-SA with the income we reported on our 2022 return?  Should I simply keep a copy of the 1099-SA with the supporting documentation for our 2023 return in case there is ever a question?

Thank you.

[Mike9241]

what year is showing on the form? if 2022 you don't enter it at all.

if it's 2023 under the deductions and credits tab in the medical section is the link to enter the info.

or in the jump to box type 1099-sa, highlight the form with the mouse and then click on open form 

it should not affect your 2023 taxes.  I assume on your 2022 taxes you indicated that the excess was withdrawn so you paid taxes but not penalties on that amount ( penalties would show  up on form 5329)

[dmertz]

Because there are no taxable earnings shown in box 2 of the 2023 Form 1099-SA, entering this form into 2023 TurboTax, although good for recordkeeping, won't have any effect on your filed tax return.

[Ames_01]

It's a 2023 1099-SA.  I clicked on "Forms" at the top of the HSA section of the question mode, and the app took me to Form 8889-T.  I completed the Part II - HSA Distributions, Line 14 worksheet and the Line 14-15 questions.  Line 16, Taxable HSA distributions, summed to zero.  So, all OK for record keeping and no impact on our tax return.  Thank you!

One additional question: TurboTax for 2022 calculated 2022 excess contributions as $2,074.  We paid the tax on this amount with our 2022 return.  The amount of excess 2022 contributions that we actually requested and received in March/April 2023 was $2,074.67, or $0.67 more than reported on our 2022 return.  Unfortunately, we had calculated and requested the return of excess before entering the amounts in TurboTax.  Clearly our calculation rounded differently than TurboTax.  When entering the actual amounts into TurboTax 2023, the actual returned amount/withdrawal rounds to $2,075.  Will that $1.00 difference between 2022 and 2023 be flagged by the IRS or will it be considered a rounding error and de minimus?   Thank you.

[BillM223]

Yes, "de minimis" is a good description of this. Just document what happened (probable rounding error) and stick it in your tax file in case any one ever asks.

[Ames_01]

Umm...I just re-reviewed my tax return, and everything that I had entered into form 8889-T, part II distributions, questions 14-16 has disappeared.   I can't enter anything into lines 14-16 (or the accompanying smart worksheet) unless I right-click on the boxes and override the controls on the box.  What has happened?  Did another TT entry remove the 2023 1099-SA amounts?  Is it OK to override the controls to enter the non-taxable return of excess contributions?  I know it doesn't affect the tax due, but I thought it would be important for record keeping that this entry is included in the return, especially because the IRS and we received the 1099-SA.    Many thanks.

[BillM223]

It would be adequate record keeping to save your 1099-SA with the printed copy of your return with a note as to why you are doing this. I would not risk fouling up your return just trying to get part of the 8889 the way you want it.

[Ames_01]

OK, that's a wise note of caution.  I'll leave it as-is, with documentation, and not leave the return open to unnecessary inquiries.  Thanks so much for the help and also to everyone else who responded.

[Ames_01]

In case anyone is interested, I discovered why I couldn't enter any information into Form 8889, it's because the 1099-SA form had not been entered.  I had tried several times to "jump to Form 1099-SA," via a search from "step-by-step" mode, yet each time, TurboTax took me to Form 8889 in "Forms" mode.  After repeated tries, on a whim, I right-clicked on the "Gross Distributions" field of the Line 14 Smart Worksheet, then clicked on "Data Source."  Voilà, the 1099-SA entry window popped up.  Once the 1099-SA form was entered, Form 8889 became responsive.  As expected, the newly-completed forms didn't change the tax return bottom line, but now I am confident that all the required forms are completed properly.  Thanks everyone.