Level 3

Question

Need help on HSA excess contribution roll over from last year

Forum|Forum|4 years ago
January 25, 2022
3 replies
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Hi,

Here is my situation (MFJ so HSA limit for 2020 is 7100, and 2021 is 7200, both have HDHP for each year).

In year 2020, we over contributed by 3550, so on Jan 2021, we asked HSA to withdrawal and roll over the excess contribution to year 2021 (2000 for taxpayer 1 and 1550 for tax payer 2). HSA ended up contribute 1980 to taxplayer 1 and 1530 to taxpayer 2 for year 2021 (minus the 20 fee)

In Mar 2021, we noticed we over-contributed again for year 2021, so we asked HSA to wirhdraw

Withdrawal 3000 from taxpayer 1 to our bank accounts.
Withdrawal 2610 for taxpayer 2 to our bank accounts.

In 2021, we contributed through employer:

$5940 for taxpayer 1
$4600 for taxpayer 2

Now we received our 5498, which shows:

Taxpayer 1: $7920 ($5940 from employer + $1980 from 2020 roll over)
Taxpayer 2: $6130 ($4600 from employer + $1530 from 2020 roll over)
Total $14050

Our 1099-SA shows:

Taxpayer 1: gross distribution $5000, distribuition code 2 (excess distribution)
Taxpayer 1: gross distribution $4160, distribuition code 2 (excess distribution)

Since we have withdrawan $5610 for 2021 (3000+2610), and the limit is 7200, we have still over-contributed by $1240.

My questions are:

Our W2 does not show our 1980 and 1530 roll over from 2020, so where to type these info? (Since these 2 numbers counted in form 5498, I think we should report in Turbotax)
Turbotax keeps telling us our excess contribution is $3340 (5940+4600-7200), it does not count in the 1980+1530 from rollover.
We have typed our 2 1099-SA forms, but there is no where to show that the 5000 or 4160 distributions offset our excess contribution
I think for 2021, our excess contribution withdrawals are only 3000 + 2610, not 5000 + 4160 (the delta is for 2020), so where to tell Turbotax such info?
On the window "Let's enter XXX's HSA contributions", some times there are 2 cells to type, but sometime there is only 1 cell for taxpayer 2, not the second cell:
- Any contribution you personally made (not through your employer): I thought this is where to type the $1980 and $1530 numbers?
- Any contribution you personally made but withdrawal before Apr 18, 2022: I thought this is where to type the $3000 and $2610 numbers? But this cell some times do not show up for taxplayer 2 (some times do show up...)

I tried to look into Raw Tax Data and to see if I can edit form 5329 and 8889, but still don't get the result I want, as some cells are not editable. Thanks!

B

BillM223

Level 15

" we asked HSA to withdrawal and roll over the excess contribution to year 2021" - I don't understand what you mean. Did you ask the HSA custodian to withdraw the excess (in which case, they would have sent you a check for the amount0, or did you allow the excess to carryover to the next year? If the latter case, then you should have reduced your normal 2021 contributions by the amount of the carryover, or you would have another year with excess contributions.

"In Mar 2021, we noticed we over-contributed again for year 2021," Did you really notice that you had excess contributions for 2021 in March of 2021?

"Our W2 does not show our 1980 and 1530 roll over from 2020, so where to type these info? " This should not appear on your W-2; this is a matter between you, the HSA custodian, and the IRS.

Your excess was $2,000 plus $1,550 - the fees charged by the HSA custodian don't reduce the rollover amount (if any).

"Turbotax keeps telling us our excess contribution is $3340 (5940+4600-7200), it does not count in the 1980+1530 from rollover." - $3,340 is your excess for tax year 2021. It does not include the excess for tax year 2020. You can withdraw the excess for 2021 (provided that you do it by the due data of April 18, 2022) but you can't withdraw the 2020 excess any longer.

"We have typed our 2 1099-SA forms, but there is no where to show that the 5000 or 4160 distributions offset our excess contribution" - I have no idea what this means.

"Any contribution you personally made (not through your employer): I thought this is where to type the $1980 and $1530 numbers?" - do NOT enter any amounts here that were part of the code W amount on your W-2! This field is ONLY for amounts that you sent directly to your HSA custodian. Any amounts you contributed by means of payroll deduction are called the "employer contribution" - really, it's OK, it works out better for you. The field you refer to is only for contributions you did NOT make through your employer.

"Any contribution you personally made but withdrawal before Apr 18, 2022: I thought this is where to type the $3000 and $2610 numbers? But this cell some times do not show up for taxplayer 2 (some times do show up...)" TurboTax is trying to understand which part of the excess that you are withdrawing is from direct contributions, not through your employer. But you have TurboTax thoroughly confused at this point which is why you see the input field at some times and not at others.

Please answer my questions above, and then I will show you how to enter everything.

Please put "@ BillM223" (without the space in between) at the bottom of your reply so that I will be notified of your response.

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L

LittleFatSheepAuthor

Level 3

Hi Bill, thank you so much for the quick response.

Here are my answers to your questions.

" we asked HSA to withdrawal and roll over the excess contribution to year 2021" - I don't understand what you mean. Did you ask the HSA custodian to withdraw the excess (in which case, they would have sent you a check for the amount0, or did you allow the excess to carryover to the next year? If the latter case, then you should have reduced your normal 2021 contributions by the amount of the carryover, or you would have another year with excess contributions.

Jerry: Yes, it's the latter case. We front loaded HSA at the beginning of 2021, and when we realize the problem, we have already excess conteibuted to both 2020 and 2021. So we decided to carryover the excess in 2020 to 2021, and sum up, calculate 2021 total excess, and then in Mar 2021, we asked HSA custodian to withdrawal the excess to our banks. But later in 2021, we switched jobs, and the new company contributed additional $1240 (not from our paycheck, but simply employer contribution front load), that caused 2021 excess contribuition again...

"In Mar 2021, we noticed we over-contributed again for year 2021," Did you really notice that you had excess contributions for 2021 in March of 2021?

Jerry: We front loaded HSA (well, majority of the HSA contribution is from employer part, not our part, which contributes on the first pay check in Jan), so when we notice that, it's too late.

"Our W2 does not show our 1980 and 1530 roll over from 2020, so where to type these info? " This should not appear on your W-2; this is a matter between you, the HSA custodian, and the IRS.

Your excess was $2,000 plus $1,550 - the fees charged by the HSA custodian don't reduce the rollover amount (if any).

Jerry: on healthequity.com website, as well as their 5498 form, they actually used 1980 and 1530 as 2021 contribution. But just FYI, since it does not make big difference.

"Turbotax keeps telling us our excess contribution is $3340 (5940+4600-7200), it does not count in the 1980+1530 from rollover." - $3,340 is your excess for tax year 2021. It does not include the excess for tax year 2020. You can withdraw the excess for 2021 (provided that you do it by the due data of April 18, 2022) but you can't withdraw the 2020 excess any longer.

Jerry: For year 2020, we asked HSA to carryover the 3550 excess to 2021, so this 2000+1550 should be counted into 2021? If so, the excess contribution of 2021 should be 3340 + 2000 + 1550 = 6890? (Or 6850 if excluding the $40 fee)

"We have typed our 2 1099-SA forms, but there is no where to show that the 5000 or 4160 distributions offset our excess contribution" - I have no idea what this means.

Jerry: NVM, I will explain at the end.

"Any contribution you personally made (not through your employer): I thought this is where to type the $1980 and $1530 numbers?" - do NOT enter any amounts here that were part of the code W amount on your W-2! This field is ONLY for amounts that you sent directly to your HSA custodian. Any amounts you contributed by means of payroll deduction are called the "employer contribution" - really, it's OK, it works out better for you. The field you refer to is only for contributions you did NOT make through your employer.

Jerry: Ok, i will ignore this one

"Any contribution you personally made but withdrawal before Apr 18, 2022: I thought this is where to type the $3000 and $2610 numbers? But this cell some times do not show up for taxplayer 2 (some times do show up...)" TurboTax is trying to understand which part of the excess that you are withdrawing is from direct contributions, not through your employer. But you have TurboTax thoroughly confused at this point which is why you see the input field at some times and not at others.

Jerry: Ok, I will ignore it for now.

Jerry: So now my questions are:

From our W2, we contributed 5940+4600=10540, which is 3340 more than the 7200 limit. But since we had the 2020 excess contribution of 3550(=2000+1550) carryover to 2021 (Which shows up in 5498 form as 2021 contribution), should we actually count our excess contribution as 3340 + 3550 = 6890? If so, where to tell Turbotax the 3350?
On March 2021 we withdraw 5610=3000+2610 excess contribution for year 2021, should this help to reduce the above 6890? If so, where to tell Turbotax?
Based on the above 2 numbers, looks like we will have to withdraw another 6890-5610=1280 as excess contribution to our bank accounts, right?
Do I need to pay income tax on the withdrawal of excess contribution? (The 3000 + 2610 on Mar 2021, plus the 1280 that I will withdraw soon, equals to 6890), if so, where should I tell Turbotax, or which form in Turbotax tax filing should I see this number?

@BillM223 Thank you, and please see my above answers.

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M

Mike9241

Level 15

perhaps you did 2020 wrong. because you did not actually withdraw the 2020 excess you should have paid a 6% penalty tax on the $3550 (or the FMV of the accounts if lower) that would have shown on form 5329

if you did 2020 incorrectly, then 2021 Turbotax does not know that there is an excess from 2020 that needs to be accounted for. they're supposed to show up on form 5329 line 42 and get there from the Turbotax carryover worksheet.

the 5498s are not entered into Turbotax

you say you withdrew only $3,000 and $2,610 from your HSA's but with code 2 for excess contributions the 1099-SA's are showing $5,000 and $4160 (obviously they're including the 2020 excess but they were not in fact withdrawn)

I think they are wrong. they should only report the actual distributions.

but there may also be an issue with Turbotax since entering them has no effect on the excess even if the box employer contribution withdrawal is checked.

hopefully @BillM223 has a solution.

I would say the 2020 excess of $3550 + the 2021 excess of $ 3340 less the amount already withdrawn of $5610 should leave an excess of $1280 which if not withdrawn by the due date of the 2021 return should be subject to the 6% penalty. however the penalty is based on the lower of the excess or the FMV of the account at 12/31/2021 (needs to be entered for the 5329)

also, forgot to mention if the 2020 excess was through employers - you should have reported $3550 as additional taxable income. the reason is that any contribution made through payroll deduction reduces your taxable income. so your taxable wages would have been reduced too much.

and for 2021 the $3340 excess should be included in income for the same reason schedule 1 line 8

the 5498's may also be wrong because my understanding is they are only you report actual contributions for the year.

L

LittleFatSheepAuthor

Level 3

Thank you Mike

perhaps you did 2020 wrong. because you did not actually withdraw the 2020 excess you should have paid a 6% penalty tax on the $3550 (or the FMV of the accounts if lower) that would have shown on form 5329

if you did 2020 incorrectly, then 2021 Turbotax does not know that there is an excess from 2020 that needs to be accounted for. they're supposed to show up on form 5329 line 42 and get there from the Turbotax carryover worksheet.

Jerry: There is no 5392 in 2020, since the 2020 excess contribution was withdrawn and carryover to 2021, so 2020 does not have any excess contribution. My understanding is that the 3550 from 2020 excess contribution should be counted into 2021 contribution (Which is true if looking at 2021 5498).

Turbotax has helped me to adjust HSA contribution for 2020 to 7100, so I have supposed to pay the income tax for the 3550. I don't think there is penalty tax, since I have withdrawn (in the form of carryover, this equals to withdrawal as cash, then contribute into HSA in next year) before 4/15.

the 5498s are not entered into Turbotax

you say you withdrew only $3,000 and $2,610 from your HSA's but with code 2 for excess contributions the 1099-SA's are showing $5,000 and $4160 (obviously they're including the 2020 excess but they were not in fact withdrawn)

Jerry: The 1099-SA on taxpayer one shows $5000 (2000 from carryover + 3000 withdraw) with code 2. I don't know why the 2000 carryover is counted as withdrawal.

I think they are wrong. they should only report the actual distributions.

but there may also be an issue with Turbotax since entering them has no effect on the excess even if the box employer contribution withdrawal is checked.

hopefully @BillM223 has a solution.

I would say the 2020 excess of $3550 + the 2021 excess of $ 3340 less the amount already withdrawn of $5610 should leave an excess of $1280 which if not withdrawn by the due date of the 2021 return should be subject to the 6% penalty. however the penalty is based on the lower of the excess or the FMV of the account at 12/31/2021 (needs to be entered for the 5329)

Jerry: I felt you are right, there is indeed 1280 excess contribution that I should withdraw before 4/15/2022, so as long as I withdraw them, and Turbotax should help me to adjust my HSA contribution as 7200, so I am essentially paying the income tax for the 6890 (3550+3340).

Now my understanding is that:

1099-SA code 2 does mean withdrawal of excess contribution
The 2020 carryover should be counted into 2021 contribution
As long as the 1099-SA + additional withdrawal before 4/18 equals to the total excess contribution (6890), and tell TT so, TT will adjust my total HSA contribution to 7200, so essentially I am paying the income tax.

Now the problem is that Turbotax does not calculate it (Or maybe it just ignores all carryover and withdrawal, and ask taxpayer to calculate by themselves), see below screenshot:

Second to the last line is 7200 limit
Last line is the 3430 excess contribution
No where shows my carryover of 3550
No where shows how the second line (5000+4160) impacts the numbers
Maybe TT never cares about how much you have withdrawn, but only:
- How much you have excess contribution FROM EMPLOYER
- Whether you have or will withdraw such excess, if so, then TT will simply adjust total HSA contribution as 7200. TT does not help you calculate how much net excess contribution you need to withdraw (which is 3430+3550-5000=1280), if your responsibility to calculate and make it correct. Though I don't know if IRS will get it right.

Now I feel much clear now, hopefully Bill can help verify my last sentence. Thank you both!

B

BillM223

Level 15

Sorry, Jerryxe, I am still not sure what you did...

"We front loaded HSA at the beginning of 2021, and when we realize the problem, we have already excess conteibuted to both 2020 and 2021. " - At the beginning of 2021, did you make contributions to 2020 and 2021?

"So we decided to carryover the excess in 2020 to 2021, and sum up, calculate 2021 total excess, and then in Mar 2021, we asked HSA custodian to withdrawal the excess to our banks." When you did your TurboTax return for tax year 2020, TurboTax reported that you had excess contributions, right? And then when TurboTax asked you what you wanted to do with it, you answered that you were not going to withdraw the excess for 2020 but were going to let it ride to 2021, right?

But, later, you wrote, "There is no 5392 in 2020, since the 2020 excess contribution was withdrawn and carryover to 2021, so 2020 does not have any excess contribution. " - So, again, you have me confused. Did you actually withdraw your 2020 excess before the due date of the return? If this was the case, then, yes, you would have not gotten a 5329 on your return for 2020. But if that is the case, what do you mean when you say , "So we decided to carryover the excess in 2020 to 2021"? These are contradictory statements, which is why I am confused.

So let me ask you to present your information a different way:

How many HSAs do you have? Do you have one for you and one for your spouse, or are you using the same one? If so, who does the one HSA belong to?

What was the code W value in box 12 on your W-2 for 2020?

What was the code W value for your spouse's W-2 for 2020?

When you did your return in TurboTax for 2020, what was the amount that TurboTax said was in excess?

What did you tell TurboTax at this point? That you would withdraw all of the excess, some of the excess, or none of it? If "some of it", what was the amount that you withdrew?

On what date did you withdraw excess for 2020 (if you did), and what was the amount?

***For your first employer in 2021***

For your 2021 W-2, what was the amount with code W in box 12 on your W-2?

For your spouse's 2021 W-2, what was the amount with code W in box 12 on your spouse's W-2?

***For your second employer in 2021***

For your 2021 W-2, what was the amount with code W in box 12 on your W-2?

For your spouse's 2021 W-2, what was the amount with code W in box 12 on your spouse's W-2?

When you did your return in TurboTax for 2021, what was the amount that TurboTax said was in excess?

What did you tell TurboTax at this point? That you would withdraw all of the excess, some of the excess, or none of it? If "some of it", what was the amount that you withdrew?

"then in Mar 2021, we asked HSA custodian to withdrawal the excess to our banks. "

OK, how much did you "withdraw"? What year did you tell the HSA custodian that it was for? Did you tell the custodian that it was an "excess contribution"?

Since then, have you asked for any other withdrawals of excess contributions? If so, on what date and for what amount?

Are either of you 55 or older?

If things like the excess are split into two numbers (i.e., one for you and one for your spouse), please indicate which spouse saw this number.

Stick with it and we will sort this out...and also remember to add "@" BILLM223" to your response (without the space in between, so I will be notified of your response...

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