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HSA Excess Contribution from previous years is preventing completion of current tax year where I no longer have an HSA account

I’m trying to file my 2023 taxes and it won’t let me because I’m getting a validation error to check this entry.

 

“Form 8889-T: HDHP coverage check box needs to be checked to indicate the type of coverage held under a high-deductible plan during 2023.”

 

I haven’t had a HDHP in 2023. On the form it’s showing excess HSA contributions carried over from 2022 that are still in HSA. This excess contribution is actually from 2021. I chose to pay taxes on the excess contribution back in 2021 instead of withdrawing the excess contribution, but it showed up in my 2022 taxes, and now preventing me from completing my 2023 taxes.

 

Please advise.

 

I have worked for 3 companies in the last a few years.

 

Company A - until June 2021 - HDHP Plan / HSA Account with Benefit Wallet

Company B - from June 2021 until Dec 2022 - HDHP Plan / HSA Account with Bank of America

Company C - Jan 2023 - Current - Health Plan (Not HDHP) - No HSA account.

 

I have used all the money in Benefits Wallet account by 2022.

I still have money available in my Bank of America account.

 

2020 5498-SA - Benefit Wallet

Box 1- Empty

Box 2 - $1900.00

Box 3 - Empty

Box 4 - Empty

Box 5 - $1326.11

Box 6 - HSA

 

2021 5498-SA - Benefit Wallet

Box 1- Empty

Box 2 - $1380.00

Box 3 - Empty

Box 4 - Empty

Box 5 - $986.67

Box 6 - HSA

 

2021 5498-SA - Bank of America

Box 2 - $2210.00

Box 3 - $130.00

Box 4 - $0

Box 5 - $2203.29

Box 6 - HSA

 

2022 5498-SA - Bank of America

Box 2 - $3630.00

Box 3 - $70.00

Box 4 - $0

Box 5 - $3777.52

Box 6 - HSA

 

 

Tax Return - 2021

 

1040 - Line 8 - $120.00

1040 0 Line 23 - $7

 

Schedule 1 - Line 8e - $120

Schedule 1 - Line 9 - $120

Schedule 1 - Line 10 - $120

 

Schedule 2 - Line 8 - $7

Schedule 2 - Line 21 - $7

 

5329 - Line 47 - $120

5329 - Line 48 - $120

5329 - Line 49 - $7

 

 

Tax Return - 2022

 

1040 - Line 1h - $0

1040 - Line 10 - $10

1040 - Line 23 - $382

 

Schedule 1 - Line 13 - $10

Schedule 1 - Line 26 - $10

 

Schedule 2 - Line 8 - $7

Schedule 2 - Line 21 - $382

 

5329 - Line 42 - $120

5329 - Line 43 - $10

5329 - Line 44 - $0

5329 - Line 45 - $10

5329 - Line 46 - $110

5329 - Line 48 - $110

5329 - Line 49 - $7

 

8889 - Lines 3, 5, 6, 8 - $3650

8889 - Lines 9, 11 - $3640

8889 - Lines 12, 13 - $10

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3 Replies
BillM223
Expert Alumni

HSA Excess Contribution from previous years is preventing completion of current tax year where I no longer have an HSA account

"“Form 8889-T: HDHP coverage check box needs to be checked to indicate the type of coverage held under a high-deductible plan during 2023.”"

 

TurboTax is confused. During the Federal Review you don't show any HDHP coverage, yet you clearly have an HSA (you do, whether you think you do or not).

 

I assume that you did not indicate that you had an HSA (Deductions & Credits-> Medical->1099-SA, HSA, MSA). Therefore you did not go through the HSA interview. Therefore you did not positively indicate that you had no HDHP coverage.

 

Had you done so, I think the Review would have balked at a similar, related place.

 

In your case, enter "Self". If this just causes more trouble, go back to the HSA interview, tell TurboTax that you have an HSA (this is true, after all), then tell TurboTax when it asks that you had no HDHP coverage. Then continue to the end of the HSA interview (don't skip out of the interview), when if you are ask about what type of HDHP coverage you had on December 1, 2022, answer NONE.

 

***

 

I see that you have a "long-term excess contribution" that is a carryover (line 46, form 5329, 2022 return). This will carry over forever and cost you money and pain until you correct it.

 

You can't correct a long-term carryover the same way you cure a short-term excess. 

 

You were supposed to withdraw the original excess by the due date of the original return, but you missed that, and this short-term excess became a long-term excess that got carried over. 

 

 

 

/* Fixing the "long-term excess" */

 

Sometimes, of course, the HSA is empty of dollars because they have been spent already.

 

In this case, the short-term excess is converted to a long-term excess and is carried over to the next year. Like for the short-term excess, the excess is added to line 8f (see above) or removed from line 13 (see above) AND a 6% penalty is charged on the amount carried over (usually).

 

However, you can't "cure" the long-term excess by withdrawing it in the same way as the short-term excess.

 

The cheapest and easiest way is to reduce the HSA contributions for the next year by the amount of the long-term excess carried over. This carryover will print on Line 2 of form 8889 as a "personal" contribution. So if you reduce your regular HSA contributions, the carryover amount will be used up and the carryover will disappear. BUT, this requires that you have gone under HDHP coverage again. If you have not and don't expect to, then read the following...

 

Otherwise, you have to make an HSA distribution, and when you enter the 1099-SA, say that it was not for qualified medical expenses. This will add the carryover to Other Income, and add a 20% penalty to your return.

 

If you don't have in hand a 1099-SA that you can modify (like one for normal medical expenses that are more than the carryover), then you will have to contact the HSA custodian to ask for a withdraw (not for excess contributions!!!), and when the 1099-SA (probably for your 2023 return in 2024) comes, you will enter it and report that the amount equal to the excess was not for medical expenses (see two paragraphs above).

 

But, at least the carryover will be ended.

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HSA Excess Contribution from previous years is preventing completion of current tax year where I no longer have an HSA account

Thank you for the prompt response.

 

I do have a 1099-SA for 2023 from Bank of America:

 

Box 1 - $505.80

Box 3 - 1

Box 5 - HSA

 

Do I have to contact the HSA custodian and ask for additional withdrawal equal to the excess amount?

Or are you saying I should put that some of the $505.80 was not for medical expenses?

 

How much should I put as non medical expenses? $120?

 

Second question: I wasn't sure how to answer the question of if I had an HSA account in 2023.

I still have funds in my Bank of America HSA account from previous employer. But I did not have a HDHP, and I was not eligible to have an HSA account.

 

You mentioned I should answer NONE when asked what type of HDHP coverage you had on December 1, 2022. But in fact I did have a HDHP on December 1, 2022. I left my job at the end of December. Can you clarify please?

 

I'm really hoping I can put an end to this and not deal with it next year 🙂

 

Thanks

BillM223
Expert Alumni

HSA Excess Contribution from previous years is preventing completion of current tax year where I no longer have an HSA account

"Or are you saying I should put that some of the $505.80 was not for medical expenses?" - It would be simpler to modify an existing withdrawal rather than ask for a new one.

 

"How much should I put as non medical expenses? $120?" - I think your excess carryover from 2022 to 2023 is $110, right? (see line 46 on the 2022 5329). Enter $110. If line 48 on the 2023 5329 goes to zero, then this is right.

 

"But I did not have a HDHP, and I was not eligible to have an HSA account." - The HSA is persistent, and you have it until you actually close it. Not being able to contribute is not the same as not having it.

 

"You mentioned I should answer NONE when asked what type of HDHP coverage you had on December 1, 2022. But in fact I did have a HDHP on December 1, 2022. I left my job at the end of December. Can you clarify please?" - Sure, probably my bad.

 

If you have HDHP coverage on December 1, 2022, then you were eligible to use the last-month rule for 2022 (in fact, TurboTax will use it whether you want it or not). If you use the last-month rule, then you have to maintain HDHP coverage for all of 2023 (I don't think you did that). What good is the last-month rule? It lets you use the maximum annual HSA contribution limit no matter how few months you had HDHP coverage.

 

But in your case, you contributed in the current year just $10 less than your annual limit, so only $10 of the excess was used up in 2022. (that's why the $120 carryover dropped to $110).

 

Anyway, you need to answer that question with Self (I guess that's what you had on that date). Then TurboTax will announce that you had a "lapse" in coverage (technically, "failure to maintain HDHP coverage"). Say it was not due to a disability, and this will direct you to an interview which will try determine if you owe a penalty for tis. 

 

Since you want to be clear of this, just answer the questions, no matter how annoying. You may or may not have a relatively small penalty - you won't know until you do it.

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