Hi!
I am frustrated beyond words. I have used Turbo Tx Deluxe for the last 10+ years.
In 2017, I made an excess contribution to an HSA account and DID NOT CORRECT IT until 2023. ( I only had a HDHP in 2017.)
In May 2023, this excess HSA contribution from 2017 was distributed to me. I received a 1099-SA for 2023 indicating the ditribution code '2'. I had NO other income in 2023 as i am retired and living off of savings. Turbo Tax (deluxe) says I owe $51 excise tax. That is not right. The distribution should incur a 20% penalty of $171.
I was FORCED to upgrade to your 'deluxe' product because I had an HSA and it did not handle it correctly.
How do I override it?
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After October 15, 2018, a 2017 excess contribution can only be removed by making a regular taxable HSA distribution reported with code 1. It was not permitted to be corrected in 2023 by obtaining a code-2 distribution. A code-2 2023 Form 1099-R implies a correction of either a 2022 excess contribution or a 2023 excess contribution.
Your mistake was requesting the HSA custodian to make a return of excess contribution instead of a regular distribution. In fact, if you made no excess HSA contributions for 2022 or 2023, it was improper for the HSA custodian to accept your request to make a code-2 return of contribution. When one is obtaining a distribution to correct an excess HSA contribution after the due date of the tax return for the year for which the contribution was made, one should never tell the HSA custodian that the distribution has anything to do with an excess contribution.
To correct the excess, you'll need to treat the distribution as a regular code-1 distribution instead of a code-2 distribution by selecting code 1 and leaving box 2 blank on TurboTax's 1099-SA form. The distribution is made taxable by indicating that it was not used for medical expenses. This distribution is subject to ordinary income tax and, if you were under age 65 at the time of the distribution, to a additional 20% excise tax. Because this reporting on your tax return will disagree with the reporting on the Form 1099-SA provided by the HSA custodian, you'll need to mail your tax return with explanation.
I'll page @dmertz. Please check back here later.
After October 15, 2018, a 2017 excess contribution can only be removed by making a regular taxable HSA distribution reported with code 1. It was not permitted to be corrected in 2023 by obtaining a code-2 distribution. A code-2 2023 Form 1099-R implies a correction of either a 2022 excess contribution or a 2023 excess contribution.
Your mistake was requesting the HSA custodian to make a return of excess contribution instead of a regular distribution. In fact, if you made no excess HSA contributions for 2022 or 2023, it was improper for the HSA custodian to accept your request to make a code-2 return of contribution. When one is obtaining a distribution to correct an excess HSA contribution after the due date of the tax return for the year for which the contribution was made, one should never tell the HSA custodian that the distribution has anything to do with an excess contribution.
To correct the excess, you'll need to treat the distribution as a regular code-1 distribution instead of a code-2 distribution by selecting code 1 and leaving box 2 blank on TurboTax's 1099-SA form. The distribution is made taxable by indicating that it was not used for medical expenses. This distribution is subject to ordinary income tax and, if you were under age 65 at the time of the distribution, to a additional 20% excise tax. Because this reporting on your tax return will disagree with the reporting on the Form 1099-SA provided by the HSA custodian, you'll need to mail your tax return with explanation.
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