Handling excess 2017 HSA Contribution - what are the next steps?

[Anonymous]

Turbo Tax told me that I made an excess 2017 HSA contribution ($3400). Before I file my 2017 taxes next week, tomorrow I will contact my HSA provider and ask them to remove the extra contribution and earnings. What happens after that?

1. Do I have to wait for a new form from my HSA provider indicating the removal BEFORE I file my 2017 taxes?
2. If NO to above, how does Turbo Tax handle the $3400 and the earnings for 2017?

Basically, how do I check that everything is in order and what all do I check for before filing my 2017 taxes?

Thanks,

D

[PaulaM]

1. No you don't have to wait for the new form to file.

2. In the HSA section, indicate that you will withdraw the excess contribution before April 17, 2018.  TurboTax will then remove the excess contribution it reported on Form 5329 and the extra taxes. 

[Anonymous]

The HSA provider asked me to take the excess out as a distribution specifying that it is an excess amount, but also asked to include the earnings. Which begs the following questions.

1. What if the employer has also made some contribution towards the excess amount?
2. How does TurboTax figure out my contributions, my employer's contributions and my earnings?

[PaulaM]

Your and your employer's contributions count as one as far as the total is concerned. So when TurboTax is calculating and excess (plus any earnings) that is the amount of contributions that needs to be removed to avoid the penalty. No distinction between employee and employer contribution is necessary. Just remove the excess amount as calculated.

The earnings portion is not calculated by TurboTax. It is up to the taxpayer to request the withdrawal of any earnings when making the excess contribution withdrawal from their fiduciary.

[BMcCalpin]

Just as an add-on, when you asked for the "return of excess contributions", the normal response of the HSA administrator will be to

1. Send you a check for the excess amount.
2. NOT send you a new or corrected 1099-SA for this year.
3. Will send you a 1099-SA early next year reporting the excess contributions and its earnings, with a distribution code of '2' instead of '1' (normal).

The result when you enter this 1099-SA next year (for the 2018 tax return) will be that the box 1 gross distributions will be ignored (because you paid tax on it in 2017) and that the earnings will be added to Line 21 (Other Income) of the 1040.