HSA and Social Security

[Vette1996]

I applied for Social Security and was able to go back six months to September. I have a HSA and contributed during this time. When calculating how much I could contribute for the first 8 months of 2022. I had exceed the max. contribution by a small amount  Turbo Tax stated that I could take out the small anount of the HSA so I want to be proactive but after I take out the small amount what do I do with that amount since I believe taxes need to be paid on it. Also I will need to take out the 2023 contributions, Correct? and what do I do with that amount. I have stopped contributing to my HSA within a week of applying for Social Security.  

[DaveF1006]

if you withdraw the 2022 excess contribution by April 18, you will not be accessed a penalty on your return. Also, you will need to withdraw the 2023 contributions as well by the tax due date of your 2023 return, which is April 15, 2024.

1. To report, go to federal>deductions and credits>medical>1099SA, HSA ....
2. Now as you scroll through the questions, there will be a screen informing you that you have an excess HSA contribution.  Here you can indicate you will withdraw the contribution by April 18. You won't be taxed now on this excess contribution.
3. Meanwhile, ask for a return for your 2023 contribution. If you receive the return of the contribution, you will not need to report this on your 2024 return

[Vette1996]

Thank you for the detailed and prompt response. Two questions :

1. The excess that I withdraw, do I need to declare as income on my 2022 tax return?

2. When I withdraw the 2023 contributions do I need to declare this as income on my 2023 tzx return?

[PattiF]

No, the excess that you withdraw in 2022 is not taxable income. And the 2023 withdrawal will not be taxable income. These are your funds that you have and are not income.

@Vette1996 

[Vette1996]

J have contacted my HSA bank to withdraw the excess contribution amount. They will not calculate the earnings on my excess that is required to be filled in on their form. They told me to contact my tax preparer. The excess is less than $150. Can TurboTax calculate this for me? If not, what is the formula to calculate the earnings? Would it be better to declare as income and pay the 6% tax?

[KrisD15]

You needn't make any calculations on your own. 

TurboTax made you aware of the excess and adds that excess as income for you. 

Select that you will remove the excess by April 18th. 

The Earnings will be reported as income NEXT year when you file your 2023 return since you will receive the earnings in 2023. 

If you receive two 1099-SA Forms, the one for the excess will have been take care of on the 2022 return. 

The one for the earnings will be used for your 2023 return. 

HERE is a link to an answer from our HSA expert Bill concerning your situation. 

[Vette1996]

Thank you for your response . The problem is my HSA Bank will not allow me to withdaw the excess because their form for requires me to state what the earned income is before they provess my withdrawl request. Is my only option then is to select no? and pay 6%?  

[DianeW777]

No. As indicated by @KrisD15, you can answer that you will withdraw the money by the due date, then provide whatever is necessary to y our HSA Bank for the withdrawal.  They should accommodate based on the IRS tax rules.

Keep all of your records to show you requested the withdrawal on time and that you provided the required earned income information.