HSA Distribution: Form 5329 not auto-created / unable to enter data in 5329

[somckeever]

I need help with reporting a taxable HSA distribution made in 2021 that was reported on my 2020 return and on which I have already been taxed.  Here's the story:  I applied for Medicare when l retired in March of 2021.  The effective date of Medicare was post dated to 7/1/20, so for tax year 2020 I was ineligible to contribute to an HSA after June 30, but continued to contribute to my HSA as I did know Medicare coverage would be post dated until March of 2021.  I withdrew the excess contributions from my HSA in 2021 before the May, 2021 tax filing deadline, and used TurboTax  to report this "distribution" on my 2020 tax return, and the amount of the distribution was reported as Additional Income on Schedule 1, Line 8, and a Form 8889 was generated.  But Form 5329 was NOT generated.  Now, for tax year 2021 the distribution of the excess contribution is reported by the HSA bank on Form 1099-SA.  When I input this form into TurboTax 2021 and report the distribution as "not for medical expenses", the distribution ends up on Schedule 1, Line 8e "Taxable Health Savings Account distribution", and I will be again paying taxes on the distribution for the second time, having already paid with my 2020 return.  And again, TurboTax 2021 does not auto-generate Form 5329.  And when I use "Forms" to open Form 5329-S I am unable to input data into some of the fields.  Similarly, if I try to amend my 2020 tax return and enter data into Form 5329-S I am unable to enter data into certain fields.  Can anyone help me solve this problem?  How can I ensure that I will not again be taxed in 2021 for the distribution that I was taxed on in 2020?

[BillM223]

"a Form 8889 was generated. " - this is normal and would have been created in any case if you had any activity in your HSA.

"the amount of the distribution was reported as Additional Income on Schedule 1, Line 8," - technically, it was the amount of the excess that was added to line 8 - the amount on the 1099-SA might not have been the same amount.

"I will be again paying taxes on the distribution for the second time, having already paid with my 2020 return. " - No, you won't. Let's work on this.

"But Form 5329 was NOT generated." - that's correct; if you withdrew the entire excess, then you are not penalized the 6%, so no 5329.

"And when I use "Forms" to open Form 5329-S I am unable to input data into some of the fields.  " - please don't do this, don't try to create a 5329 for 2021.

"if I try to amend my 2020 tax return and enter data into Form 5329-S I am unable to enter data into certain fields." - please don't do this, either.

******

"When I input this form into TurboTax 2021 and report the distribution as "not for medical expenses", the distribution ends up on Schedule 1, Line 8e "Taxable Health Savings Account distribution", and I will be again paying taxes on the distribution for the second time, having already paid with my 2020 return. "

What was the distribution code on the 1099-SA that you received that was for the amount of the excess that you withdrew? Was it "1"? I bet it was because you would not have been asked how much of it was for medical expenses if it were the correct distribution code of "2".

So when you contacted the HSA custodian last year to withdraw the excess, did you tell the HSA custodian that this was a "withdrawal of excess contributions"? That is different than any other type of distribution.

Also, when TurboTax asked you if you "overfunded" your HSA account in 2020, did you answer YES or NO? Since you withdrew the excess in early 2021, you "cured" the excess, so should have answered NO. If you did answer YES, go back and change your answer to NO.

[somckeever]

Thanks for the help.  I've contacted the custodian of my HSA account (BoA) and asked them for a corrected 2021 1099-SA.  I was asked if I requested the distribution of the excess contribution using the paper form, marking the box "Excess Contribution Removal".  I said, "No, I requested the distribution using the on line tool.  There was no indication on the BoA website that a paper form would be required for excess contributions."  Hopefully they can look at the note I put in their system showing that it was a withdrawal of excess contributions.  If I input a 1099-SA only showing the distributions used for valid medical expenses, then the distribution of the excess contribution does not show up as income and is not taxed.