Opened $500 to HSA when started didn't qualify so notified HR had it stopped, $500 put back in regular pay. now his w2 shows $500 in there, thought it was close now what?

[BMcCalpin · Accepted solution]

Did the employer actually contribute the $500 to the HSA? If not, they owe you a corrected W-2, one without the code W in box 12 of your W-2.

You will not be able to correctly file with this W-2.

If the employer agreed to not withhold the $500 through payroll deduction, then they should understand that the W-2 is wrong and must be corrected.

[sas117]

The corrected w2 won't be ready by the deadline, what should we do?

[BMcCalpin]

Not a big problem. Do you know about how much tax you will owe (i.e., the balance due)? If you expect a refund, so much the better.

File an extension through TurboTax (see below). This will give you 6 months to file your return (October 15th, of course, you can file it at any time, you don't have to wait 6 months). If you expect to owe money, you will need to arrange for the payment with the extension; if you expect a refund, you won't have to do anything except file the extension.

***Filing the Extension***
Open your return in TurboTax. Do a Search (upper right) for "4868, filing extension" (lower case, exactly as written, without the double quotes), and jump to the result. Follow the instructions.

Then when you get the corrected W-2 (even next week) you can return to TurboTax and swap out the W-2s and file the return.

[sas117]

So after filing an extension and keeping on our employer, they have just told us it is too late to get a corrected W-2 and that we need to talk to our tax preparer to know what to do. Should we just call the IRS and ask them what to do?

[BMcCalpin]

Well, if you told your employer about this prior to April 15th, I doubt that it is really too late, but I guess you need to declare victory and move on.

What you do will depend on what your employer did. I am going to state the most likely case, and what you should do in this case:

1. Did the employer enter the $500 in box 12 (12a, 12b, 12c, 12d - doesn't matter which one) with a code of "W"?

2. Did the employer remove the $500 from Wages in boxes 1, 3, and 5 on your W-2? Note that you can't tell this by looking at the W-2, you have to ask the payroll department.

3. If #1 and #2 are true, then (a) enter the W-2 as printed into TurboTax, and when you go to the HSA interview (do a Search for "hsa" and Jump to the result), and in the interview tell TurboTax that you did NOT have any HDHP coverage at any time in 2018. This will cause the $500 contribution is be considered as excess and the $500 will be added back to income by TurboTax (which is what your employer should have done for you in issuing the corrected W-2). The $500 will appear on Line 21 (Other Income) when you preview your 1040.

This result of this process will be that you will pay the correct tax when you file your 1040.

If, however, your employer did not remove the $500 from Wages in boxes 1, 3, and 5 on your W-2 yet left the $500 in box 12 with the code of "W", then come back and say so and we'll see what we can figure out.

[sas117]

Thank you. Finally got through to the old  Payroll people and it is a Yes both 1 and 2 applied so I followed step 3 but when I come to the end to file it says there is a problem and it is wanting me to 

" check the box to indicate the coverage under a high-deductible health plan during 2018" and wants me to check self-only  or family." Neither one of us was eligible or had a high deductible health plan which was why we had it stopped and put back right away. The program says if I don't fix this problem then I can't file electronically. Do I check it  just check the self only box since it was through his employer or no? I already paid for the program so I am hoping I can efile.

[BMcCalpin]

This sounds like there was a problem in the federal review. This can happen when TurboTax is confused by the answers.

OK. When you get to this point, has TurboTax already told you that you had $500 in excess contributions? And did you indicate that you would withdraw the $500 before the due date of the return? If so, then you should see that the $500 was added to Other Income on line 21 on Schedule 1 (form 1040). If this is true, then the numbers on your return are correct.

As for withdrawing the $500, there are two ways this can go:

1. Check your HSA statements (probably you can see a transaction log online at the HSA custodian's website) to see if the $500 has already been withdrawn. The employer has certain rights to withdraw mistaken contributions, and they may have already done this. Ask your employer if they ended up giving you the $500 somehow - you're paying income tax on it (line 21), so it's only fair that you actually receive it. Ask Payroll how they handled it.

2. If your employer hasn't already withdrawn the $500, then you need to do it. Call the HSA custodian (or look online at the custodian's website) and complete the form for a Mistaken Contribution of $500. The custodian will send you a check for the $500 (if it's still in the account); this is OK because TurboTax has arranged the 1040 so that you are paying tax on the $500.

Now, if all of the above makes sense, then the answer to your question "(TurboTax) wants me to check self-only or family" is to check "Self", because the answer won't matter, you are just trying to get past the review so you can e-file. The would-have-been HSA contribution is reported on form 8889 (your return may have an 8889-T for the taxpayer and 8889-S for the spouse - this is OK). If you can see the 8889, you should note that you are showing no HDHP coverage for any month. If so, this is right, and the answer of Self or Family won't matter - you are only checking one or the other just to get past the review to e-file.

OK, does all this make sense?