Excessive HSA

[R1taaram]

While employed my husband mistakingly contributed to his HSA for 3 years while on Medicare.

Turbotax caught this error and each year added the contributions to other income and paid he paid add'l tax on line 49 of form 8889.

After filing 2021 the accumulated excess was still carried over on line 48 from previous years although no add'l taxes were charged.

For 2021 there were no contributions made to HSA.

How do i get rid of excessive contributions for next year if I have to carry over line 48?

[FangxiaL]

Has your husband withdrawn the excess contributions? As long as the excess contributions sit in his HSA account, he will continue to pay the 6% penalty (excise tax) until they are withdrawn from his HSA account. 

To remove excess contributions, complete the HSA Distribution Request form, indicating Excess Contribution Removal as the reason for the distribution request. 

[R1taaram]

All HSA monies were used for medical expenses so there is no money in the account.

is that considered a withdrawal?

[PattiF]

No, that is not considered a withdrawal from the HSA if all of the money is used for medical expenses.

You will need to use form 5329 to report the excess contributions. Part VII is used to report the Additional Tax on Excess Contributions to HSAs. If you are using TurboTax Desktop, this can be done in the forms mode where excess contributions for each year are recorded.

[R1taaram]

The money has been recorded on the 5329 has accumulated  past couple years, the excess has been added to other income every year, 

how do I get the excess to stop populating on form 5329 ?

is there a question I’m answering incorrectly in TurboTax?

[RaifH]

You are not paying the 6% tax on excess contributions if the HSA does not have a balance.

1. Enter Last Year's Excess Contribution from 2020 Form 5329, Line 48.
2. Select No, I'm not going to make this withdrawal.
3. What's the total value of all your HSAs? Enter 0 if you have emptied out the HSA. This will avoid any excess contribution tax.

The excess contribution will carry forward, but as long as you do not have money in your HSA, you will not pay any penalty. If you are covered again by an HDHP in the future without Medicare, then the excess contribution will be eliminated. It is only then that the excess contribution will go away entirely. 

[R1taaram]

Thank you.

I think what you’re saying is that because I have no money in my HSA account that’s why I had no addl taxes in 2020, but I will continue to see that excess amount show up every year going forward and I should just ignore it?

[RaifH · Accepted solution]

Yes, that's correct. You may want to continue entering your total HSA value as $0 in future years just to ensure you are not paying the 6% tax on excess contributions, but the carry forward will have no effect on your bottom line as long as you do not use or contribute to the HSA.