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HSA excess contributions

Hi, my employer mistakenly contributed to my HSA account on 01/08/2024. The contribution was made in 2024 but with line - "Contributions Applied from Future Year". And it goes over the 2023 year limit by 214$.

On 1/12/2024, I sent the "HSA Distribution Request Form" with 300$ amount.
On 02/06/2024, Excess Distribution was fulfilled with "Earnings on Excess Contributions:$0.00".
My 1099-SA (2023) form has no updates, and this distribution will go to 1099-SA (2024) form, as I understand.

During tax filing, on step "Let's enter Ainura's HSA contributions." I have a question: "Any employer and payroll contributions made but withdrawn before April 15, 2024". If I try to provide 300$, then the "Federal Review" step will give me an error "Form 8889-T: Line 12 Wks, line B should not be greater than the amount of excess employer contributions/excess HSA funding distributions." If I understand correctly it means I should provide the number of removed exceeded contribution, not total.
So, I provide 214$. In the next step, I see a big message which helps me understand my tax in detail. And in that message, I see "...and your income came from... and another income of $214. "
At this point, it looks like 214$ will be counted as my 2023 income, but I removed 300$, and I was thinking that it will be counted as 2024 income based on 1099-SA (2024).

So I'm not sure that taxes will be filled correctly now, and I need your help with this situation. It's also the first year of doing taxes and using TurboTax.
Please verify that what i was doing is correct and maybe help with future process. Thank you!

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2 Replies
BillM223
Employee Tax Expert

HSA excess contributions

"Contributions Applied from Future Year" - OK, this means that the employer made the contribution in 2023, but told the HSA custodian to apply it to 2023. This is OK as long as the custodian did it.

 

But if I understand you correctly, TurboTax told you that you had an excess of $214 in HSA contributions for 2023.

 

Note that the moment this happened, TurboTax did one of two things: (1) if the excess was from your employer, then it added the $214 to Other Income on Schedule 1 (1040), or (2) if the excess was from your personal contribution, then the amount on line 13 Schedule 1 (1040) is reduced by $214. In your case, I am thinking that the $214 was added to line 8f on Schedule 1 (1040), right?

 

If I try to provide 300$, then the "Federal Review" step will give me an error "Form 8889-T: Line 12 Wks, line B should not be greater than the amount of excess employer contributions/excess HSA funding distributions."

This is correct, because you can't withdraw more in excess than there actually was in excess. When asked ""Any employer and payroll contributions made but withdrawn before April 15, 2024" you should have answered with a number no larger than 214.

 

 At this point, it looks like 214$ will be counted as my 2023 income

Yes, that it as it should be. But since this came from your employer, this is a good thing, because it means that your employer paid you $214 more than Wages in box 1 on your W-2 (but of course, you'll have to pay tax on this, too).

 

"On 1/12/2024, I sent the "HSA Distribution Request Form" with 300$ amount."

Did you mean that you asked the HSA custodian for a withdrawal of excess contributions (using this excess phrase)? If you just asked for a distribution, that's a problem. What did you actually ask for?

 

"On 02/06/2024, Excess Distribution was fulfilled with "Earnings on Excess Contributions:$0.00"."

What was the distribution code (box 3) on this 1099-SA, 1 or 2? If 1, then this is the 1099-SA for your regular medical expenses. If 2, then this is the 1099-SA for the withdrawal of your excess contributions, except I don't think you asked for a withdrawal of excess contributions.


"My 1099-SA (2023) form has no updates, and this distribution will go to 1099-SA (2024) form, as I understand."

What does "updates" mean in this case?

 

If you actually get a 1099-SA with a code of 2 in box 3, then the box 2 amount of earnings should be added to your income in 2024.

 

Please answer my questions above in bold.

 

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HSA excess contributions

Hi, thank you for your quick response!

Note that the moment this happened, TurboTax did one of two things: (1) if the excess was from your employer, then it added the $214 to Other Income on Schedule 1 (1040), or (2) if the excess was from your personal contribution, then the amount on line 13 Schedule 1 (1040) is reduced by $214. In your case, I am thinking that the $214 was added to line 8f on Schedule 1 (1040), right?


I can't see my 1040 at the moment. I assume that TurboTax does not allow me to see forms until I complete forms fulfillment and end the whole process. But the contribution was made by my employer.

"On 1/12/2024, I sent the "HSA Distribution Request Form" with 300$ amount."

Did you mean that you asked the HSA custodian for a withdrawal of excess contributions (using this excess phrase)? If you just asked for a distribution, that's a problem. What did you actually ask for?


I got a such message

1/9/2024 5:12 AMAuto-generatedIRS Maximum Contribution to your HSA Exceeded

with such text: "Please complete the HSA Distribution Request Form and select “Excess Contribution Removal” as the reason for your withdrawal."
I did as requested, but because I wasn't sure about the correct amount, I asked for 300$, which will cover the excess contribution.
Screenshot 2024-02-28 at 5.17.23 PM.png


"On 02/06/2024, Excess Distribution was fulfilled with "Earnings on Excess Contributions:$0.00"."

What was the distribution code (box 3) on this 1099-SA, 1 or 2? If 1, then this is the 1099-SA for your regular medical expenses. If 2, then this is the 1099-SA for the withdrawal of your excess contributions, except I don't think you asked for a withdrawal of excess contributions.


The only 1099-SA that I have is 1099-SA (2023), and this form was issued on 1/8/2024, so before I filled the form to remove the excess contribution, and before distribution was processed. So, the only distribution that I have on that form is related to my normal medical spending during 2023 with code 1.


If you actually get a 1099-SA with a code of 2 in box 3, then the box 2 amount of earnings should be added to your income in 2024.


Updated means Corrected. After fulfilling my request, I thought I would receive a corrected 1099-SA (2023). But I did not get the corrected 1099-SA (2023). As I understand, the requested 300$ distribution was done after 31 Dec. This distribution will go in 1099-SA (2024), which I will get next year.

As I understand, I was not allowed to remove 300 as an exceeded contribution removing process because my exceeded contribution was 214, but it still gets processed, and I need to verify how it was done.

I will call the HSA custodian tomorrow to verify that it was processed as an exceeded contribution removal.

Also, please help me understand which year 214 will be counted as my income. If my custodian made an issue and proceeded to remove 300, not as an exceeded contribution, I will need to request it again but on 214 exactly. I anyway will receive them in 2024, but it will still be the 2023 tax year.

Again, thank you for your help!

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