Handling Excess HSA Contribution from Prior Year to Current Year

[ktramo17]

I have excess HSA contribution from 2022 for $700 that i paid 6% excise tax in 2022.

For 2023 here are the following facts:

No longer part of a HDHP, that coverage ended on 7/31/2022

No Contributions were made in 2023 as no longer had coverage

Excess $703 was not withdrawn and do not plan on withdrawing by the filing deadline for tax year 2023.

Based on the above facts that took place in 2023, form 5329 appears to be calculating correctly in that line 42 is reporting the excess contribution from 2022 and 6% excise tax is being calculated.  What i don't understand which is my primary question is that TurboTax is generating a form 8889 and the amount that is entered on line 42 of form 5329 is the number on line 2 of form 8889.  In the Turbotax questionnaire, I selected that I had no coverage under a high deductible plan during 2023 however form 8889 is still being triggered and line 1 of form 8889 which is "Check the box to indicate your coverage under a high-deductible health plan (HDHP) during 2023" has to be entered either "Self-only" or "Family.  What i don't understand is, why is form 8889 even being generated when I did not have coverage? I understand reporting the excess which is still in the account for 2023 on line 42 of form 5329 in order to the excise tax calculation but don't agree based on my understanding as to why 8889 is being generated by the software.  Does form 8889 have to be completed if there is still excess in the account even if you did not have coverage resulting in why the answer to line 1 of form 8889 has to either be "Self" or "Family"

[BillM223 · Accepted solution]

You have carryover HSA contributions - that triggers the 8889. It is needed to ascertain if you used up the carryover this year (you didn't).

Yes, the Review gets confused when it sees that you had HSA "activity" but did not mark the HDHP coverage for each month. This is appropriate in your situation, but the Reviews flags it anyway.

In your case, just mark line 1 as "Self", because it won't change the calculations on Line 1, but it will let you bypass the check in the Review.

[ktramo17]

Thanks @BillM223 that makes sense. One last question that I forgot to address.  For the “review” section, i have to also answer on the Smartworksheet for Line 3 “None”, “Self” or “Family” for each month.  The “None” option says if you had Medicare select “None” which did not have. But if I select “Self” or “Family”, Turbotax will ultimately change the excess contribution to a deduction which doesn’t seem to be correct and I’m in this loop.

Am i correct in that the only way to fix this loop is to select “None” on Line three Smartworksheet so that ultimately $0.00 will be populated on form 8889 and also won’t trigger the deduction. 

[BillM223]

That's a different variation of the usual Review issue.

Well, in this case, answering NONE is correct. The comment about NONE is for Medicare, is not exclusive. Answer NONE if you just didn't have HDHP coverage. This not only should fix your loop, but is the right thing to do anyway.

[ktramo17]

@BillM223 amazing, thank you again for your help.  Happy to close out this issue.  

[SarahL88]

Thank you so much for the help! I am in the exact same boat as the original post!

[danbez]

Same issue as above, so I followed the recommendations from " billm223". However, this is something that TurboTax should solve, as what we are doing here is really a workaround due to bugs in the TurboTax review tool.