Keep getting error 8889-T line 1 when efile!

[BillM223]

"2. You did not withdraw this short-term excess contribution by April 15, 2023.

We did not notice this excess part until now. We do have it on 2022 tax return - 5329."

Hmpf, TurboTax should have made a big stink about this on your 2022 return, unless you failed to enter something.

OK, for 2023, you don't have a code W in box 12 on your W-2 and you don't have HDHP coverage.

So you have no reason to go through the HSA interview. This also means that you won't tell TurboTax that you (or your spouse) that you have HDHP coverage. So HSA calculations should be correct. 

This means that if you answer "Self" on the Review question on Line 1 (8889) this should not affect calculations any, but will bypass this loop in the Review.

Try this and see.

[euolivia]

Got it! Thanks for the explanation.

I de-select the HSA part and choose 'self' and go through selections on 'None' coverage for each month plan. It did not change the return amount and passed the everything. Thanks Bill for the help!

Just wondering for the future, as far as I know, we should use / withdraw these money out of HSA to prevent further 6% tax. Is that correct?

[BillM223]

If you are told by TurboTax that you have an excess contribution in the current year return, then, yes, if you can, withdraw the excess amount by the due date of the return (generally, April 15th). This is the easiest and cheapest solution.

/* Fixing the "short-term excess" */

You must remember to (1) tell TurboTax that you will withdraw the excess in a timely manner, and (2) call your HSA custodian to request the "withdrawal of an excess contribution" (use this phrase) along with the earnings. The custodian should (1) send you a check for the excess and the earnings, and (2) send you a 1099-SA with a distribution code of '2'. NOTE: the 1099-SA will be entered on next year's return, so don't wait for it.

Also NOTE: the excess will be automatically added to Other Income (line 8f of Schedule 1 (1040) or line 13 on Schedule 1 (1040) is reduced) - please do not do anything to report the excess on your 2023 return - TurboTax has already handled it.

/* Fixing the "long-term excess" */

Sometimes, of course, the HSA is empty of dollars because they have been spent already.

In the case, the short-term excess is converted to a long-term excess and is carried over to the next year. Like for the short-term excess, the excess is added to line 8f (see above) or removed from line 13 (see above) AND a 6% penalty is charged on the amount carried over (usually).

However, you can't "cure" the long-term excess by withdrawing it in the same way as the long-term excess.

The cheapest and easiest way is to reduce the HSA contributions for the next year by the amount of the long-term excess carried over. This carryover will print on Line 2 of form 8889 as a "personal" contribution. So if you reduce your regular HSA contributions, the carryover amount will be used up and the carryover will disappear.

Otherwise, you have to make an HSA distribution, and when you enter the 1099-SA, say that it was not for qualified medical expenses. This will add the carryover to Other Income, and add a 20% penalty to your return.

But, at least the carryover will be ended.

Have I sufficiently overanswered your question? 😉

[euolivia]

Absolutely! Thanks so much for your help!