We discovered in June of 2024 that I was not eligible to participate in my employer's HSA in year 2023 because I had Medicare Part A. We were told to withdraw the total of HSA contributions made toward 2023 by myself and my employer and the earnings on those contributions. That withdrawal was made in August 2024. We received a letter from Fidelity (that holds my HSA) with all the amounts listed. This Fidelity letter does not have any Form number on it.
We have been advised to file the amended return for year 2023.
How exactly do I do that with Turbo Tax?
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I will page @dmertz for this. Please check back later.
The problem is, it might be too late. This is where we need @dmertz to comment because he is the best expert in this forum for this kind of matter.
You must remove the excess "before the filing deadline, including extensions." That means April 15, or October 15. The question is, does the October 15 deadline apply to everyone, or only if you applied for an extension before April 15. I am unsure here, because there are some cases where the IRS says "even if you don't have an extension, you can correct this issue up to October 15", but I don't see that instruction for HSAs, and I don't remember know how the deadline rule is interpreted for this situation.
If the October 15 deadline applies, then this is what you do:
If you are using Turbotax, the program should handle this for you. Open up your return and start the amendment. Change the answer on your HSA interview to "I did not have qualified insurance". You may be given a series of 12 monthly check boxes to answer, for each month you can check "single HDHP", "family HDHP" or "Something else." If you had medicare all of 2023, check "something else" for every month. When you indicate you were not eligible, Turbotax will warn you of that fact and ask "do you want to withdraw the excess or pay the penalty."
When you indicate that you will withdraw the excess, Turbotax should ask about earnings. The excess contributions are added back to your line 1 taxable wages, and the earnings are added to line 8z of schedule 1 as "other income." You will owe additional tax, which you can pay when you file the amended return. Because you are making a late payment after April 15, the IRS will probably send you a bill for 4-5 months of interest. (Variable rate, currently 8% APR.)
If the April 15 deadline applies, and it is too late to make a corrective distribution, then this is what you do.
1. File an amended 2023 return to report that you were not eligible, and that you won't remove the excess. You will need to pay income tax on the excess contributions plus a 6% penalty. Do not report the removal of excess.
2. Then for 2024, report the withdrawal of whatever the amount was as a regular withdrawal (distribution). Indicate that it was not used for medical expenses. This will remove it from your HSA and you will not be subject to an annual, ongoing 6% penalty. But you will pay income tax again on the entire distribution, not just the earnings. (There is also a 20% penalty for not using the funds for medical expenses if you are under age 65, but since you have medicare, you are probably over 65 and not subject to the penalty.)
The October 15, 2024 deadline applies if by April 15, 2024 the 2023 tax return was filed or a request for extension was filed. The amended tax return must include the statement, "Filed pursuant to section 301.9100-2."
Thank you! Very helpful!
Thank you very much. Appreciate your help.
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