HSA Excess contribution confusion

[Gregc63]

I had a total contribution of $1300 to my HSA. The limit is $3500. However, I was sent a 5498-sa form this year. And turbotax is auto-calculating my excess contribution to be $1300, the exact amount of my total contribution. What is going on? My HSA bank even verified that I should not be penalized since I was more than $2000 UNDER the limit. Can anyone explain what’s going on?

[KurtL1]

When your W-2 indicates that you contributed to an HSA you need to go the HSA section in the software to answer the questions on the contribution. 

1. Locate the Search Magnifying Glass in the upper right hand corner of the screen.
2. Enter HSA in the search box and hit Enter.
3. Select Jump to hsa.
4. Answer questions on your HSA contribution.

[bicknell]

I have a similar problem. Turbotax says that my entire HSA contribution of $2400 is taxable (plus penalty) because I "said" that someone else was going to claim me as a dependent. However, I didn't say that in the section on basic info. I said that someone "could" claim me, but they were "not going" to claim me. No matter what I do, Turbotax says the "are" going to claim me, therefore the HSA contribution is taxable. I tried TaxSlayer, and they have it correct. I always used Turbotax because I thought they would be more accurate, but not this time.

[BillM223]

The test for not being allowed to contribute to an HSA is whether or not you can be claimed as a dependent, not whether or not you are claimed as a dependent.

The US Tax Code in Section 223 says "(6)Denial of deduction to dependents

No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins." See US Tax Code Section 223.

Section 151 refers to the ability to take a dependent. Like much of the tax code, this is convoluted language, but it says (in translation) "No deduction for contributions to an HSA is allowable to anyone who can be claimed as a dependent by another taxpayer." It does not make any distinction for those who were actually claimed.

Therefore, TurboTax is handling the HSA contributions correctly.

[bicknell]

I respectfully reply that that interpretation is not correct. The deduction is not available to anyone else. The HSA contributions are mine alone because I have a HDHP and the HSA through my employer. It is not related to my parents, who COULD have claimed me - but did not. There is no way they could get a deduction for the HSA contributions that my company made for me. BTW, TaxSlayer and the IRS Free File programs both got this correct. Only Turbotax screwed it up.

[BillM223]

@bicknell

I am sorry to tell you, but my interpretation (and the interpretation of all the tax professionals here at TurboTax) is, in fact, the correct interpretation.

Many tax professionals never read the actual tax code and don't realize what it says; instead they rely on Google searches and see opinions that seem reasonable but which are, in fact, mistaken. 

"There is no way they could get a deduction for the HSA contributions that my company made for me."

You misunderstand what the Tax Code is saying. It says:

"No deduction shall be allowed under this section to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer"

"a deduction under section 151 " refers to the ability to claim a dependent at all, not to claim expenses that the dependent made. This sentence is not saying that your parents can claim your HSA contributions, only that you cannot claim a deduction for HSA contributions if someone can claim you as a dependent (whether or not they do is immaterial).

I do not know what other tax software companies do; I can say only that the credentialed tax professionals at TurboTax all agree that this is the correct interpretation and, unlike others I suspect, have provided references to the Tax Code to support our interpretation.