HSA question

[Elaine313432]

I contributed after tax to my HSA in 2024 but was not eligible to do so because I didn’t have a HDHP. Fidelity did a correction of excess funds and no money was made in interest on these contributions. Since all of the money went in after tax and is not being listed as a deduction on my 2024 taxes, how do I include this on form 8889? From my understanding, the money went in after tax so I shouldn’t be doubly taxed on these contributions, right?

[BillM223]

When you went through the TurboTax HSA interview, then the total amount of contributions was reported as "excess", right? And when TurboTax asked you if you wanted to withdraw the excess, you said "yes", right? And it turns out that you did withdraw the excess. 

If the HSA contributions were made through your employer (i.e., appeared on your W-2 in box 12 with a code of W), then when the W-2 was printed, the code W amount was removed from Wages in boxes 1, 3, and 5 - hence these contributions are not taxable.

However, if these contributions eventually turn out to be excess, then these contributions have to be added back to income, so that this amount can be subject to income tax after all (this appears on line 8f of Schedule 1 (1040)). This is OK because you got the income when the excess when sent to you by the HSA custodian.

If you were able to withdraw all of the excess, then you will not have any additional tax (over the regular income tax) or penalties on this amount.

So if you went through the HSA interview and told TurboTax that you would withdraw the entire amount of the excess, there is nothing more that you need to do. TurboTax will fill out the 8889 correctly so you can file and enjoy whatever refund you get.

[DRapport27]

You would need to file Form 8889 if one or more of the following were true:

• You, or someone on your behalf (such as an employer) made contributions to a Health Savings Account (HSA) for you during the tax year.  Both your and your employers contributions will be reported on Form W-2, Box 12 as Code W.
• You received a distribution from an HSA during the tax year.  This is reported on Form 1099-SA.
• You must include certain amounts in income because you failed the eligibility text.
• You acquired an interest in an HSA because of the death of an account beneficiary.

If it was after tax contributions, there should be no Code W on your W-2, and therefore no need to include it in your return.

The whole point of the HSA is to avoid paying taxes on health care costs, then why, and how could you contribute 'after tax'?

[Elaine313432]

Once the HSA is open it stays open until you close it. I had just been putting money in to use a deduction later, but I just didn't know that I was no longer eligible. It was honestly a stupid oversight on my part.

[BillM223]

It is possible to make contributions to an HSA with "after tax" dollars, by sending the money directly to the HSA custodian to be placed in your HSA account. This amount is reported on line 13 of Schedule 1 (1040). This is what people call a "deduction".

The amount of HSA contributions made by payroll deductions appear on your W-2 in box 12 with a code of W. The code W amount is removed from Wages in boxes 1, 3 and 5 when your W-2 is printed - hence, these contributions might be better called an "exclusion".

Elaine, I am not sure how you made these contributions, but it sounds like you made them directly to the HSA custodian (please correct me if I misunderstood). When your excess contribution is detected by TurboTax in the HSA interview, then the amount on line 13 on Schedule 1 (1040) will be reduced by the amount of the excess.

YOU DO NOT have to do anything about the 8889; TurboTax will handle this automatically (TurboTax will handle the excess automatically if you made the contributions through your employer as well).

You are correct that the HSA is "persistent". This is like an IRA - it belongs to the individual and lasts until you close it.

And please don't be sad that you don't understand all the rules about HSAs - many tax professionals don't either.