Forms 8889 and 5329 - HSA Excess Contribution

[AlanM6591]

In 2021 I switched from an HDHP to Medicare and had an excess contribution to my HSA of $4783.  I have not made contributions to an HDHP in 2022 and 2023.

When I filed my 2022 taxes this was handled appropriately on Forms 8889 and 5329 and I paid the additional 6% tax on the $4783.

In the 2023 version of Turbo Tax I am getting and error on Form 8889 because it the program wants me to select an HDHP (Single or Family) even though it knows I did not have one.  I also noticed that the that the Line 2 Smart Worksheet is treating the excess contribution carryover as a 2023 contribution and placing it in Line 2.

This leads me to the issue on Form 5329 Part VII.  Line 42 correctly shows the excess contributions from line 48 of my 2022 form 5329 as $4783 and calculates the prior year excess contributions on line 46 as $4783.  However, the form then shows 2023 excess contributions in line 47 of $4783 even though I had no contributions to and HDHP in 2023. Furthermore it then calculates total excess contributions in line 48 as $9566 (adding lines 46 and 47 together).  Since I did not contribute to an HDHP in 2023, I should have no excess contributions for 2023 and my total excess contributions should remain at $4783.

Is anyone fixing these issues?

[BillM223 · Accepted solution]

1. The Line 1 issue in the Review (where you must choose Self or Family as your HDHP coverage) is due to the mistaken assumption that if you are in the HSA interview, then you must have HDHP coverage. 

However, since you went through the HSA interview, you must have told TurboTax that you did not have HDHP coverage or had conflicting coverage (like Medicare) all 12 months of the year. TurboTax bases its calculations on this, not the entry on line 1 on the 8889. Therefore, feel free to enter Self on line 1 of the question in the Review, because it will have no effect on the calculations, but will allow you to get past this question in the Review.

2. There is an issue with the 8889 and the 5329 concerning carryover excess HSA contributions. Please see this article.

[Andy1064]

Hello, I am Married filing joint. I did not have an HSA last year.  I was under my husband's HDHP insurance and he did not contribute to an HSA account.  On form 8889 it shows we contributed $1,810, but we did not nor did his employer contribute. Not sure how Turbo tax came up with that figure.  Can you please explain?  

Thanks

[BillM223]

$1,810, This was on line 2 of the 8889, right?

This is almost certainly your HSA carryover from 2022.

For years, the IRS gave no instructions on where to place your carryover on the 8889, so TurboTax placed it invisibly on line 2 as a "personal" deduction in order to make the form work.

However, this caused the calculation on line 13 to appear to be incorrect in some cases. I said, "appear to be incorrect" because in fact the 8889 and your return was fine.

However, this year (after many years), the IRS decided to check the math on line 13 on e-file, so a number of otherwise correct returns were rejected on e-file. So TurboTax had to do a quick fix to actually put your carryover on line 2, which, unfortunately, brings up different questions like yours.

If the $1,810 is the same as your HSA carryover from 2022, then your 8889 is OK.