Contributed to HSA through employer before HDHP plan became effective

[adaml]

I signed up for a HDHP plan effective 1/1/2020 and I changed my payroll contributions in late December thinking they would be effective in January 2020. Unfortunately a deduction was made to my last check in 2019 and now it shows up as a HSA contribution on my 2019 W-2. I did not have a HDHP plan in 2019. Would this be considered an excess contribution, and if so how can I go about getting it corrected? Also, how should I report this in TurboTax? Thanks 

[BillM223]

I assume that this contribution in 2019 was made by your employer?

The easiest way to fix this (you will need your employer's co-operation, but it was their mistake) is to do the following:

• Ask your employer to contact the HSA custodian and ask for the return of the HSA contribution. If the contribution came from the employer, they can do this.
• Then ask your employer for a corrected W-2.

If your employer or the HSA has questions about this, have them read Questions 23 and 24 in IRS Notice 2008-59.

[adaml]

Thanks for the reply. My HSA provider is open to making the correction but my employer refuses to provide a corrected W-2. How should I go about proceeding?

[BillM223 · Accepted solution]

Plan B is this:

If your employer actually put the money in the HSA AND it is still there AND if you have received the excess HSA contribution error message in TurboTax, then do the following:

1. Tell TurboTax that you will withdraw the entire excess (that 2019 contribution) by April 15th (which is now July 15th, but no reason to delay).

2. Call the HSA provider and request the "withdrawal of excess contributions" (use this phrase). They will send you a check out of your HSA for that amount.

3. TurboTax has already put the amount of the excess as Other Income on Schedule 1 (1040), but it's OK, because you are getting the income from the HSA custodian.

4. Early next year, the HSA custodian will send you a 1099-SA with the distribution code of '2' and an amount in box 2 reflecting the earnings that the excess earned in 2019. TurboTax will add the earnings to Other Income on your 2020 return.

5. And you'll be done with this!

[adaml]

I followed through with the withdrawal of excess contributions and I already received the check from my HSA provider. Turbo Tax generated the schedule 1 form for adjustments to income and the 8889 form with the excess amounts in box 9 and box 11. During the error check in Turbo Tax I get an error since I left line 1 of the 8889 form blank - its asking if I had HDHP coverage for family or self during 2019 but I didnt have any HDHP coverage in that year, so I leave it blank. This error is causing Turbo Tax to not let me file electronically. Is this correct or am I doing something wrong? Thanks for your help!

[BillM223]

This is a funny situation in the Review process.

You, of course, did not indicate any coverage (Self or Family) which was correct, so naturally Line 1 didn't show either one. 

However, the Review process insists on one or the other or else why do you have an 8889?

So the solution is to just check Self IN THE REVIEW. It won't matter, because on Line 3, no months will show coverage (which is correct), so your 8889 will otherwise be correct.

Just do this workaround in the Review and you should be able to e-file.