HSA excess contributions

[WST2]

Turbotax is getting the excess contributions incorrect. I have a 1099-SA that shows that I backed out $2153 in excess contributions. But TTax is only showing $703 in excess contributions. I'm not sure why it is getting this wrong. Since the initial contributions were ~$4900 and were pre-tax, if I don't back out the $2153, then I pay more tax than I should.

[BillM223]

Why do you think that TurboTax is getting the amount of excess HSA contributions wrong? You withdrew $2,153 in excess contributions? Where did you get that number from?

Come back and tell us what kind of HDHP policy you had (Self or Family), how many months you had it, if you had it on December 1, 2023, the code W value on box 12 of your W-2, whether or not you carried over any excess from 2022, and so on.

[wctustin]

I think I found the problem. My HSA situation is too complicated for TTax.
I stopped contributing after 4 months because of signing up for Med. PtA (only), so I'm still on a HDHP. But because I'm married and my wife is < 65 and we are on the same Family Plan she can have a separate HSA and we can still contribute the full $8750 (2023). The excess was the amount that I over-contributed after the 4 months and took out. I can't check off the 4 months of the HDHP vs Medicare chart, that only allows $2916. I have to do the full 12 to get the $8750. We ended with ~$2700 in my HSA (< the max $2916) and ~$5000 in my wife's. 
TurboTax gets the $703 from adding the original amount contributed to my HSA from box 12-W + my wife's and then subtracting $8750. But that is incorrect, since the real excess is the amount over-contributed to my own HSA that I had backed out by my company, the $2153.  I should be taxed on that since it was pre-tax money when contributed.
It's all pretty complicated, and TTax doesn't have an option for partial year Medicare for one HSA and a full year allowance because we are both on the family plan, even though I can't contribute more than 4 months to my HSA and had to back that out since my company over contributed to my HSA.
Anyway, I figured out how to fix this by going to Forms and working with the HSA/8889 worksheets to get the excess to be $2153, to match the backed out amount, then the tax is calculated correctly, but it wasn't easy.

[BillM223]

It is not true that TurboTax cannot handle your situation, as seemingly complex as it is. It just doesn't come up with the answer that you want.

If you look at the instructions for form 8889 (especially line 6), you will see that the IRS does not handle the calculations for excess contributions in the same way as you think.

Especially, note that the TurboTax transfer of the 7,750 Family limit back and forth between the spouses in order to minimize the excess - that's how TurboTax got the excess down to 703.

Also note that the 1,000 bonus for your specific HSA (because of your age) must go only to your HSA - it can't be part of the back-and-forth.

I asked you before where you go the idea that your excess was 2,153 and I did not see an answer. Because you have made this withdrawal, you now have a problem.

You can withdraw as excess contribution only the amount that is actually in excess. The HSA is not a simple savings account from which you can willy-nilly take money out; instead there are specific rules that you have to follow.

So what you have done is withdraw (1) your excess contributions of 703 and (2) withdraw 1,450 for reasons other than for qualifying medical expenses. As such, if you can't find current medical expenses to apply that 1,450 to, TurboTax will add that 1,450 back to income as well as penalizing you 20%. Alternatively, you can see if your HSA custodian will accept your request that the 1,450 was a Mistaken Distribution, and let you send those dollars back to the HSA.

Note that the custodian does not have to accept this (which will save you a lots of money and trouble), so be nice, and even grovel if needed.

[wctustin]

1) I'm 65 so there is no 20% penalty according to 8889.

2) As I said above, the excess was because I contributed too much to my HSA after signing up for pt A Medicare, but not Pt B since I'm still on a HDHP with my wife.

3) Our limit is 8750 because we are both over 55

4) I withdrew the amount above that which I could contribute because I turned 65 last year and my employer was still contributing after that and I signed up for Medicare 2 months after my birthday.

5) We contributed to my wife's HSA after I got back the excess  $ 2153 from my account.

6) We put 5500 in my wife's account and this added to the original company contribution put us over the 8750 by 703. We are on the same family plan.

7) I will be paying tax on the 2153 because it wasn't taxed originally.

😎 I can't find a way for TTax to automatically understand this, but I was able to get the form correct to make the excess 2153, not 703.

9) The basic problem is that TTax doesn't understand contributions beyond the Medicare cut off date as excess and doesn't handle this well.

10) I'm talking about the Deluxe version that I have.

[BillM223]

1. Good, no 20% penalty 

2. Yes, any Medicare (Parts A, B, D, Advantage) disqualifies contributions to your HSA.

3. If you are both 55+ and you both have HSAs as I think you said, your limit is actually 9750, BUT while the 7,750 is shared between the two of you, the "bonus" 1,000 must go to the HSA of the person who is 55+ - in this case, each of you. That is, if you are considering just one of you, the max is 8,750, with 1,000 going to the other HSA.

4. Yes, employers continuing to contribute is not uncommon.

5. If you contributed 8,750 (it was never clear to me how much you actually contributed), then the TurboTax calculations which allocated the Family 7,750 to one or the other of you) in effect allocated this 2,153 to your wife's HSA. This is why your calculated excess was only 703, and not the 2,153 that you calculated.

Remember that the Family contribution limit treats the two HSAs as a single "virtual" HSA in order to minimize the excess.

6. So, 5,500 to your spouse's HSA and 4,953 to your HSA, is that right? If we allocate 8,750 to one HSA (out of your Family limit), then that leaves 1,703 in contributions (out of your total 10,453 in contributions) needing to be covered. However, the entire Family amount of coverage is used up, so all you have left if the 1,000 "bonus" to the other HSA. So you end up with an excess of 703, all told. It is up to you to get the correct dollars to the correct HSAs, but as for as TurboTax is concerned, it has calculated the smallest excess possible for you.

7. You have not calculated the excess correctly, as you would find out during an audit. You should review what I wrote above.

So what you have done is withdraw (1) your excess contributions of 703 and (2) withdraw 1,450 for reasons other than for qualifying medical expenses. As such, if you can't find current medical expenses to apply that 1,450 to, TurboTax will add that 1,450 back to income as well as penalizing you 20%. Alternatively, you can see if your HSA custodian will accept your request that the 1,450 was a Mistaken Distribution, and let you send those dollars back to the HSA.

8. #6 above shows that your excess is 703, no matter what you want it to be. TurboTax is working correctly and following the IRS instructions.

9. TurboTax understands your situation perfectly well, you need review the IRS instructions, and what I have written above.

10. Thanks for the version ID. I believe all the versions would handle this the same way, but sometimes we are surprised.

Of course, it's your tax return and you are signing it. We tax professionals (Enrolled Agents, CPAs, and tax attorneys) are giving you the best advice possible. 

[wctustin]

Thanks for your help.  The excess may not be 2153 because i also had legitimate medical expenses during the year that Tt may have deducted.  I'll have to check.  Either way,  there should be no penalty.  

[wctustin]

I did receive a second 1999-SA for my legitimate medical expenses so perhaps TT is subtracting those out to get the excess. I thought the excess was always what i contributed after enrolling in Medicare, but if health expenses that were taken out of my HSA reduce this, that may also be the reason for the $703, not $2153. Also,  since I'm signed up for Medicare I think we only get one 1000 bonus (#2 item) even though we both are over 55. I"m away for a few days so I can't verify the 1099-SA expenses,  but I'll check when i can. 

I think the only thing that would happen is that since i took out 2153 i will pay extra income tax since I'm over 65.

[BillM223]

Excess contributions have only to do with what was contributed to your HSA during the year, and nothing to do with distributions from your HSA for medical expenses, so that's not the reason for the 703 excess.

"I think the only thing that would happen is that since i took out 2153 i will pay extra income tax since I'm over 65." Yes, if your return is audited, I think this is true except that there may be penalties and interest. However, if you adjust your return to agree with the 703 excess, then if you report 703 as the withdrawal of excess and the difference of $1,450 as a withdrawal not for medical expenses, then extra income tax is all that you will pay, and penalties and interest will not be a problem.

Have a safe trip.

[WST2]

Ok, I got back home and looked at everything again. I then tried checking the Medicare boxes correctly, so that TT knew that I could only contribute for 4/12 months to my HSA. Medicare A vs B doesn't apparently matter. At first the tax went way up, but I had an error in the sharing between me and my wife's HSA, it had all of my contribution put toward my wife's HSA.

Once I figured that out and ran through the Step-By-Step, I found that my excess that I had returned of $2153 on the 1099-SA was more than needed. The $703 was no longer the excess, now it had it figured as $1978 (see below).
We had 7750 + 1000 bonus for my wife (>55) + 333 bonus for me (4/12 * 1000). TTax figure that all out, and had the $2916 max for my contribution. I finally ended up with the actual excess being $1978, the employer contributions for 2023 - the $2916 limit.
Since again, I'm over 65, there is no 20% penalty, but I actually had $2153 returned on the 1099-SA + $59 of interest earned on the same 1099-SA. TTax has entered $2037 on Sch1 line 8f (Income from Form 8889) which is the $1978+59, but I can't figure out where to put the $2153-$1978 = $175 of HSA withdrawal as income. Do I just add this to the 8z line of Other income? I can't see how I can get it on the 8889 form. TTax doesn't like me adding it to 12B on the 8889 form.

The ~5500 we put in my wife's HSA was deducted from our income so it can't count toward that. I think the $175 should be taxed, but I think I have to do this manually on Schedule 1.
Again, thanks for any help.

[wctustin]

I don't normally use my HSA to pay long term care premiums,  but i realized that i can apply the extra 175 taken out to that expense.  I have a copy of my premiums for the year,  so the documentation is there.  I don't think i need to fill out another form. Since ttax only added the 2037 to 8889 income, the 175 extra won't be taxed and i don't need to add it in, if i have a legitimate expense.

Thanks.

[WST2]

Hmmm... On my 8889 form, TT has my excess employer contributions 12A as 1978, but the 14C line as 2153. 
I can't get the 175 difference to show up as part of line 15, Qualified Medical expenses.

If I try to change 12B to 2153, then 12C changes to -175 and TTax says the form is incomplete and in StepByStep says that the number shouldn't be greater than the excess contributions. The excess of 1978 is what I actually had taken out of my paycheck - $2916 of the 4/12 * 8750, so that is correct.

Maybe I'll just have to enter it on Schedule 1 as excess distribution and pay the tax. It isn't that much and trying to figure out how to make the $175 show up as a Qualified medical expense without TTax errors isn't working.

[BillM223]

@WST2 

@wctustin 

 Are you two the same person? It is very difficult to answer questions when a user uses two different logins in the same thread.

@wctustin 

"but i realized that i can apply the extra 175 taken out to that expense.  I have a copy of my premiums for the year,  so the documentation is there.  I don't think i need to fill out another form" - Yes, if you have a distribution on a 1099-SA which was not for qualified medical expenses, it is good to find some medical expenses and apply them to these expenses.

No, you don't need another form - you just need to document this so that when the auditor asked you what you spent X on, you can hand him/her the sheet of paper.

P.S., there is no reason not to use your HSA to pay LTC premiums, up to your age limit. If, for example, you are in the 22% income brackets and you have $500 in available LTC premiums, then you would pay after tax $390 for the LTC premiums., even if you don't itemize.

@WST2 

This is the problem of using Forms mode instead of Step by Step.

You got a 1099-SA for the excess right? Remember when we talked about $175 being used for the LTC premium? On the 1099-SA, just answer that the amount that was for qualified medical expenses included the $175.

I am really sorry, but between two identities, your belief that TurboTax cannot handle your tax situation when it can, and in making entries in Step-by-Step as well as marking up the 8889 in Forms mode, I really have no idea what you are doing. Good luck.

[wctustin]

Sorry, I really have no idea why this forum is using two different logins, it's either because I log in to my account both from a tablet or a computer, or because I log in to turbotax.com or intuit.com. I'm really not sure. But I will try to make sure I'm logged in with WST2. At least currently I think I am.
If you don't want to help anymore that is fine, sorry about the issues.

I would use the Step-by-step if it worked, and it may, but I'm running into problems. I'll have to try again when I get home.

Here is a hypothetical with some easier numbers:
After 4/12 months, I go on Medicare. So, my contribution limit is 4/12 * 7750 = 2583 + 4/12 * 1000 = 333, for a total of 2916. This seems to be what shows up in TT when I check the eligibility in step by step. But let's say I had my employer take out $5000 because I didn't stop in time. Therefore, I put 2184 too much into my HSA. Also, say we put 5000 into my wife's HSA. 
What TT does is say that we put 5000+5000 into the HSAs for the year, but the excess it comes up with is 10000 - (7750 +1000 +333), or 917. But I really have to remove 2184 from my HSA, not 917.
If I have my company take out 2300 (I made a mistake calculating the excess), then that is what is on the 1099-SA form for excess distribution.
I think I can get TT in Step-by-step to work if I say that the excess was credited to my wife's HSA. 
But in this case I took out 2300-2184 too much, or 116, and I couldn't find a place to put that using step-by-step.
You said: On the 1099-SA, just answer that the amount that was for qualified medical expenses included the $175 (in my example above, this is 116), but I can't edit the 1099-SA.


Thanks again for any help you can give.

[BillM223]

Aha! No wonder I was confused. No, you are not logged in as WST2. Oops. See this screen shot:

I might have been better in February, but in April we are in the Twilight Zone ;-).

1. "After 4/12 months, I go on Medicare" - what date exactly did you start Medicare? I ask because your coverage (HDHP , Medicare, whatever)  is whatever coverage you had on the first day of the month. This confuses people a lot. If your policy started on the 15th of the month, then your policy for the month was the policy for the previous month.

So your policy on May 14th was whatever it was on May 1st. I say this, because you may have had 5x12 months of HDHP coverage, not 4x12 months. I can't tell you which because I don't know which date you became covered.

2. "You said: On the 1099-SA, just answer that the amount that was for qualified medical expenses included the $175 (in my example above, this is 116), but I can't edit the 1099-SA."

You do it this way:

1. Go into the HSA interview.

2. Tell TurboTax that you took money out of the HSA (however it is phrased).

3. Enter the various fields from the 1099-SA.

4. On the fourth screen, "Did you spend your HSA money on medical expenses only?" - answer NO.

5. This will exposes two additional lines: "I spent part of it on medical expenses."

This allows you to choose what went for qualified medical expenses and what did not. So you would put the LTC premiums here, and the difference would be added to Other Income as well creating as a 20% penalty.