Excess HSA Contributions not being removed after withdrawing

[baj7]

Hi - we had excess HSA contributions in 2019, withdrew it before April 15, 2020 and reported it as income on 2019 return, paid taxes. In 2020, 1099-SA showed the distribution and box 2 earnings on excess distribution. Reported it, paid excise tax etc. In 2021, it is still showing up in return carried over from 2020 return and calculates the 6% tax - money was withdrawn already. How do I fix this?

[BillM223]

When, in the HSA interview, you saw the question, "Did you overfund your HSA in 2020?" did you answer yes? If you withdrew the excess in a timely manner, you should answer NO to that question because you "cured" the excess when you withdrew it.

In the same way, how did you answer the same question in 2020 about 2019?

On your 2019 return, what are the values on lines 42 and 47?

On your 2020 return, what are the values on lines 42 and 47?

[baj7]

Thanks so much for the information. I do have my turbotax 2019 and 2020 files and for records documents, do not recall how I answered the question "Did you overfund your HSA in 2020" or 2019. Can current version open older TT  files? In my records for 2 years, did not see line 42 or 47 in 1040SR, schedules 1,2, Form 8889. 

2019 return showed excess contributions on Form 8889, showed the excess as additional income in schedule 1, line 8 (with a note Form 8889 Health Savings Accounts xxxx), and paid taxes on it.

2020 return, Form 8889 showed the excess contribution + interest on it, interest went to additional income in schedule 1, line 8. Schedule 2, additional taxes of 6% is there calculated in Form 5329.

Please advise if I need to file amended for 2019 / 20 or can it be fixed in 2021. I have taken an extension to file for 2021.

[BillM223]

My apologies, lines 42 and 47 are on form 5329, the form that is added to your return if you carry over an excess and pay a 6% penalty.

"Can current version open older TT  files?" No. I was hoping that you kept PDF copies of your return. It's a good idea because you'll never know when you'll need them.

"2019 return showed excess contributions on Form 8889, showed the excess as additional income in schedule 1, line 8 (with a note Form 8889 Health Savings Accounts xxxx), and paid taxes on it." - this would be correct if you had an excess and withdrew it in a timely manner. You did, right?

"2020 return, Form 8889 showed the excess contribution + interest on it, interest went to additional income in schedule 1, line 8. Schedule 2, additional taxes of 6% is there calculated in Form 5329." - this would be correct if you had another excess in 2020 and withdrew it in a timely manner AND if you entered the earnings from the excess for 2019 - which also did, right?

"In 2021, it is still showing up in return carried over from 2020 return and calculates the 6% tax - money was withdrawn already. How do I fix this?" - this is what puzzles me, because you withdrew the excess  for 2019, right? And you did withdraw the excess for 2020, right? And you told TurboTax both times that you were withdrawing the entire excess, right?

That's why I am interested in lines 42 and 47 on the 5329s (if any) for 2019 and 2020. I don't think you have a 5329 for 2019 but how about 2020?

[baj7]

Thanks so much BillM223!

"2019 return showed excess contributions on Form 8889, showed the excess as additional income in schedule 1, line 8 (with a note Form 8889 Health Savings Accounts xxxx), and paid taxes on it." - this would be correct if you had an excess and withdrew it in a timely manner. You did, right? Yes, I did.

"2020 return, Form 8889 showed the excess contribution + interest on it, interest went to additional income in schedule 1, line 8. Schedule 2, additional taxes of 6% is there calculated in Form 5329." - this would be correct if you had another excess in 2020 and withdrew it in a timely manner ..."

I did not have another excess in 2020.  On form 5329, line 42 was excess from 2019, line 43, 44,45 are all zero. Line 46 is same as line 42. Line 47 blank, line 48 same as line 46.

"AND if you entered the earnings from the excess for 2019 - which also did, right?" yes, reported the interest and paid tax on it.

In 2021 return I started, Form 5329-T is there, line 42 is copied from 2020 line 48, line 47 is blank, line 48 is same as line 42!

Somewhere I need to say the money was already taken out in 2020 before 2019 tax filing deadline. Appreciate your help.

[baj7]

@BillM223  - would appreciate your advice on how exactly to indicate that the excess amount was removed in a timely manner in 2019 return. What returns do I need to amend and how? Thanks so much.