HSA Excess Contribution - how to file it

[ghoward1202]

Hello,

My husband and I both have HRAs through our individual jobs, and I realized when starting our taxes that I overfunded my family HSA by $160. I have already contacted the company, filled out the form for them to refund me and I just received the refunded amount plus interest of .08.  I have added this extra $160.08 to "other income" on my tax form but my question is how does the IRS know that I removed the money, thus not overfunding anymore.  My W-2 is still the original showing the extra $160 and my work says they do not issue a corrected W2 since they did not refund me any money (the HSA company did).  Am I able to just enter the amount contributed through payroll deduction as $160 less (Code W in Box 12 on W2) than the W2 is showing since I did in fact take the money out, and am now entering it back under "other income" so it will be taxed?

Thank you.

[BillM223]

"My husband and I both have HRAs through our individual jobs" - May I assume you meant HSA here?

"I have added this extra $160.08 to "other income" on my tax form " - You did not need to do that. As soon as TurboTax realized (and told you) that you had an excess contribution, it added $160.00 to line 8 (Other Income) of Schedule 1 (1040). Please check your tax return to make sure that you don't have $160 and $160.08 on line 8 of Schedule 1 (1040). You should delete the $160.08 entry.

"how does the IRS know that I removed the money, thus not overfunding anymore. " The HSA custodian sends you (and copies the IRS) a form 1099-SA listing the distribution (i.e., the withdrawal of the excess). So the IRS knows that you withdrew the excess, both the original amount (box 1) and the earnings (box 2).

"my work says they do not issue a corrected W2 since they did not refund me any money (the HSA company did)." - your company is correct - they didn't make the mistake, you did. They do not owe you a corrected W-2.

If you made the request that the excess and the earnings be withdrawn after January 1, 2021, then the 1099-SA will be sent to you late this year or early 2022. That is because the earnings go on your 2021 tax return.

So, summarize:

1. TurboTax is adding the $160 to Line 8 (sch 1) automatically - you should not.

2. The HSA custodian will send you a 1099-SA next year.

3. You will report the $0.08 next year.

OK?

[ghoward1202]

Yes, sorry- HSA not HRA! 

OK, so where i enter my contributions to my HSA, I will still enter the amount listed on my W2, even though it would be the overfunded amount because the HSA custodian would be issuing the 1099-SA later in year to me and IRS, and that is how they would know I removed the excess? 

And the 0.08 would be reported next year just on the 1099-SA form?

Thank you so much for the quick response!

[BillM223]

"I will still enter the amount listed on my W2, even though it would be the overfunded amount"

Yes.

"that is how they would know I removed the excess? "

Yes.

"And the 0.08 would be reported next year just on the 1099-SA form?"

No, the 1099-SA should have the excess in box 1 and the earnings in box 2. But because the distribution code will be '2', the amount in box 1 will be ignored and only the box 2 amount will be added to your Other Income next year.

[ghoward1202]

Perfect. Thanks for the help!