Excess HSA Contribution

[JB177]

Hi, I had an excess HSA contribution in 2021 which was later corrected in 2023. It was reported on the tax returns for 2021 and 2022.

After adding the 1099-SA to report the excess contribution correction, the site is asking if ‘Did you overfund your HSA in 2022?’. And, technically I did not as I order funded it the year prior (2021).

How should this be answered to prevent any potential issues?  The site should provide more options than just the prior tax year. 

pls advise. 

[Mike9241]

taking the excess from 2021 which you rolled to 2022, in total (actual contributions for 2022 + the excess from 2021) did you contribute more than the max for 2022.? Yes or no 

[JB177]

Due to a timing issue, I could not roll it over to 2022 (per the HSA company). So, we paid the penalty for that year as well as 2021. The issue was fixed first thing in 2023.  To my understand you are penalized for the overage each year until is is corrected and said correction took place in 2023.  I would have preferred to address it in 2022 and attempted as much but may have received bad information. 

We have an additional tax document specific for the 2023 year tied to the excess contribution correction.  Just trying to ensure I answer the aforementioned question appropriately via the app. 

[JB177]

See my reply below. 

[BillM223]

'Did you overfund your HSA in 2022?’

Contrary to the literal wording, the question actually wants to know if you are carrying over any excess. This is because if you are able to withdraw the excess before the due date of the return, you have "cured" the excess.

In your case, you would answer YES, because of the carryover starting in 2021.

***I don't see your reply below.***

[JB177]

Thank you for your help and insight! Here is the reply I provided previously.  

Due to a timing issue, I could not roll it over to 2022 (per the HSA company). So, we paid the penalty for that year as well as 2021. The issue was fixed first thing in 2023.  To my understand you are penalized for the overage each year until is is corrected and said correction took place in 2023.  I would have preferred to address it in 2022 and attempted as much but may have received bad information. 

We have an additional tax document specific for the 2023 year tied to the excess contribution correction.  Just trying to ensure I answer the aforementioned question appropriately via the app.

[BillM223]

Yes, you answer YES to the overfund question, and enter the carryover amount on the next screen.

Note that as you have now seen, you can't withdraw a prior year excess (only the current year excess, if any). You can correct a prior year carryover in one of two ways:

1. use the carryover as a personal contribution in the current year (which may call for a reduction in your customary HSA contributions). Note that carryover is on line 2 (8889) (and may be added to any current year personal contributions).

2. take a distribution and not spend it on medical expenses - this will be added to your income and you will also be penalized and additional 20%.

[JB177]

@BillM223 and @Mike9241 

Thanks for your help. Given what has been stated about the literal wording, I originally marked the following question as ‘No’ since the HSA deduction was funded from my employer / wages in 2021 rather than 2022. Should this the following be a yes or no?

Excess contribution deducted from your wages?

Tell us if your excess HSA/MSA contribution was made by your employer and deducted from the wages in Box 1 of your W-2. Learn More

The link results in an Oops error otherwise I’d refer to it. 

[BillM223]

"Tell us if your excess HSA/MSA contribution was made by your employer and deducted from the wages in Box 1 of your W-2." In this case, the question is irrelevant because it matters only if it is a current year excess. A carryover excess is always treated like a personal contribution.

To refer back to the overfund question, it's possible that it won't matter how you answer, because TurboTax carries over the excess, but just to be safe, I encouraged you to say YES and to enter the carryover (again). 

[JB177]

Should I also answer yes to the following…

Thanks for your help. Given what has been stated about the literal wording, I originally marked the following question as ‘No’ since the HSA deduction was funded from my employer / wages in 2021 rather than 2022. Should this the following be a yes or no?

Excess contribution deducted from your wages?

[BillM223]

Do you have a current year excess (as opposed to the carryover)?

If no current year excess, then answer NO, because as I noted, the carryover is treated as a personal contribution (line 2, 8889).

If you have a current year excess, then answer yes or no, depending on how the excess was created.

[JB177]

Sorry, it was a follow up question to the original question ..

the site asked - Excess contribution deducted from your wages?

It was decided from wages but during 2021 not 2023. Should this be No since it was done in 2021?

the linked article results in an oops error 

[BillM223]

If you see this question on your 2023 return, then if you have a current year excess (i.e., an excess not caused by the carryover), answer it as is appropriate for your 2023 excess.

But if it is still referring to your 2021 carryover to 2023, then answer NO, since the carryover is treated as a personal contribution.

It doesn't matter in this case what the original contribution was, just answer NO.

[JB177]

I know you said to answer yes despite the literal wording and the excess being in 2021 rather than 2022. When doing so, I am asked to enter the ‘Amount from 2022 Form 5329, Line 48’. When reviewing said form for 2022, that value is zero rather than the $75 overage. Aren’t these statements in direct conflict? 

[BillM223]

"despite the literal wording and the excess being in 2021 rather than 2022."

This "literal wording" phrase was in reference to the "overfunding" question. Have we been talking about two different things all this time?

If indeed you had an excess HSA carryover from 2021 to 2022, then a number should have been on line 48 - UNLESS, the carryover was used up in 2022.

What were the amounts on lines 42 to 48?