HSA Form family plan and self-only plan for parts of year

[ragavi98]

Hi I just started my job and I've been having a HDHP and HSA since the end of September. Before that I was on a family only LDHP. For the year 2021 my employer contributed X amount of money and I contributed X amount of money. For 2022 my employer contributed X amount of money. On my W2 it shows the amount being contributed to HSA as 2X. On TurboTax it states, it looks like I have an excess contribution of 2X, and that the amount will be taxed an extra 6 % unless I remove it by April 18th. However this 2X amount < 3600 and I'm under 55. I don't think this should be shown. The amount 2X is showing in taxable employer contributions. I checked none for type of HDHP coverage for the months of Jan- September and then self- only HDHP coverage from Oct- December. However, on TurboTax it states Line 3A10- 12 are errors and that it should not be checked. "You indicated on the Federal Information Wks that taxpayer could be claimed as a dependent of another, which makes taxpayer ineligible. " Have I filled out the form correctly?

[BillM223 · Accepted solution]

So are you able to be claimed as a dependent on your parents' return (it does not matter if you are, but only that you could be)?

If so, you cannot contribute to an HSA.

It's a shame that so few HR personnel understand this so that they could ask you if you seem likely to be a dependent if you actually still are. This catches newcomers to the workforce every year.

OK, the way to handle this is to go back to the HSA interview and when you are asked if you had HDHP coverage at any time in 2021, answer NO. Yes, of course, you did, but under the circumstances, you were not eligible.

You will see the sum of your employer's HSA contributions and your contributions in box 12 on your W-2 with a code of W. Because you were not eligible to contribute to an HSA, this entire amount will be declared to be in excess. Now you have two choices:

1. If the funds are available in the HSA, tell TurboTax that you will withdraw the entire excess by April 18th. Then you will contact your HSA custodian and ask for a "withdrawal of excess funds" (use this exact phrase); actually, check their website because a lot of HSA custodians have such forms on their websites. The custodian will mail you a check for the amount of the excess. At the same time, TurboTax will add the amount of the excess to Other Income on line 8 of Schedule 1 (1040) on your return - this is OK because the HSA custodian is sending you a lot more than that to pay for the tax.

2. Tell TurboTax that you will not withdraw the excess and let the excess carry over to next year. TurboTax will still add the excess to Other Income on line 8 of Schedule 1 (1040) and will also penalize you 6% or the excess. Then, next year on your 2022 return, you will let this carryover be part of your contributions for 2022. That is, you will reduce your normal HSA contributions so that they plus the carryover will be less than or equal to the annual HSA contribution limit for 2022 (currently $3,650 for Single-only HDHP plans). In this way, the contribution will be used up as part of 2022's annual HSA contribution, and your excess contribution issue will be gone.

The choice is entirely up to you. but if you chose to withdraw the excess, you must contact the HSA custodian and withdraw it by April 18th, unless you file an extension (in which case, the deadline becomes October 15th).

[ragavi98]

Thank you so much and yes I am claimed to be a dependent on my parents' return.

[ragavi98]

What section of TurboTax can I go to in order to change this? Currently on Form 8889, it shows under 1) Check the box to indicate your converage under a high-deductible health plan during 2021, an X at Self-only. On turbo Tax when I tried to select that I did not have a HSA, it would not save me unchecking the box. However since it does have an amount for the HSA on my W2, on the form I should mark that I have a HSA for 2021 right? 

[ragavi98]

On form 8889-T, a couple things seem wrong 

1) Should box 1 have self-only checked? It says Check the box to indicate your coverage under a HDHP under 2021?

2) In box 2 it states : HSA contributions you made for 2021. My employer contributed X amount and I contributed X amount but through the employer. It states Do not include employer contributions ,contributions through a cafeteria plan etc. I'm assuming these would both fall under that category so the amount in this box should be 0?

3) There's a line 3 smart worksheet where it says select your coverage for each month below. I marked None for all the months. Is that the right thing for me to do? I was on a family LDHP until September. I joined my job in September during which I joined a HDHP from September. 

[BillM223 · Accepted solution]

"1) Should box 1 have self-only checked? It says Check the box to indicate your coverage under a HDHP under 2021?" - 

Yes. In fact, if you didn't have this checked, then you would get an error in the Federal Review, so leave it checked (no, it doesn't matter if it's Family or Self-only because you have indicated no HDHP coverage for any month).

"2) In box 2 it states : HSA contributions you made for 2021. My employer contributed X amount and I contributed X amount but through the employer. It states Do not include employer contributions ,contributions through a cafeteria plan etc. I'm assuming these would both fall under that category so the amount in this box should be 0?" - 

Correct. The IRS call it "the employer contribution" on Line 9. This is the sum of everything your employer contributed and everything that you contributed through payroll deduction. The reason that this make a difference is that these contributions are reported in box 12 with a code of W on your W-2, and before your W-2 is printed, the code W amount is removed from Wages in boxes 1, 3, and 5. That is, you not only don't pay income tax on HSA contribution done in this way, but you don't pay Social Security or Medicare taxes either.

Line 2, the one you referred to, is the sum of any direct or "personal" HSA contributions that you made but not through your employer.

"3) There's a line 3 smart worksheet where it says select your coverage for each month below. I marked None for all the months. Is that the right thing for me to do? I was on a family LDHP until September. I joined my job in September during which I joined a HDHP from September. " -

Yes, this is the right thing to do. It would have been different if you were not a dependent, but you can look forward to tax benefits next year.

[ragavi98]

Thanks so much! I have one more question. On turbotax it's showing that the total adjusted income for W2s is Z. The sum of the incomes on my W2s is X. Z = X +Y where Y is the income that was contributed to the HSA. For the question "How much of the Z did you earn while living/working in California?" what amount would I put? Also I mentioned I would withdrawing the excess money in the HSA so I won't be taxed 6 % on it.

[BillM223]

Are you filing a CA resident return, part-year return, or nonresident return? "How much of the Z did you earn while living/working in California?" sounds like a part-year or nonresident return question.

"Also I mentioned I would withdrawing the excess money in the HSA so I won't be taxed 6 % on it." The CA program should handle this automatically, since the withdrawal of excess contributions is also handled differently in CA than on the federal return.

[ragavi98]

I'm filling out the State Taxes tab for California on Turbo Tax. It says Tell Us about your California Income. I've only lived in California for part of 2021. I haven't earned any money in the other state I lived in during 2021.

[BillM223]

"I haven't earned any money in the other state I lived in during 2021." - Then I guess that X and Y were earned in California.

[ragavi98]

Cool I'll include Z amount in the box then. Does that sound good?

[BillM223]

Yes.