How to enter 1099-SA correctly in TurboTax?

[YKChen]

I had an excess HSA contribution in year 2021. We withdrew that amount in year 2022. So, we received a 1099-SA form with a distribution code "2". Unfortunately, TurboTax still believes I don't have taxable distributions in the 8889 form. Therefore, I continue to have excess HSA contributions in the 5329 form. What should I do?

[DaveF1006]

 To clarify, did you withdraw the excess 2021 contribution before April 18, 2022. If so, you will need to amend your 2021 tax return that reports this withdrawal. 

[YKChen]

Unfortunately, we withdrew the excess 2021 contribution after April 18, 2022, and before Dec 31, 2022.  Thanks! 

[DaveF1006]

To clarify again, did you report the 1099 SA in the return? Also did you make any contributions to your HSA account and do you have a family plan or a self-only plan?

[YKChen]

Yes, I entered the 1099-SA in TurboTax (with a distribution code "2"). Unfortunately, TurboTax still believes I don't have taxable distributions in the 8889 form. Therefore, I continue to have excess HSA contributions in the 5329 form.

In 2022, I continued to contribute to the HSA account (but did not over-contribute). 

[AbrahamT]

Double check that you entered code 2. If you inadvertently entered code 1 , normal distribution and you indicated that you used the money to pay for your medical expenses in the next screen, then the distribution would not be taxable.

My next suggestion would be 

Go back to your original entry input and delete it.

See here

then reenter the information by hitting the search glass and typing in 1099sa, go to jump to and reenter the information

from scratch.

[YKChen]

I tried (that is, I deleted it and re-entered the form). It is still the same.  

[YKChen]

Hi, all,

I believe this is a bug in TurboTax (in both desktop and on-line versions).  I usedProConnect (another software by Intuit).  The treatments are very different. 

Background: The over-contributed $130 in the year 2021 was withdrawn in the year 2022.  In 1099-SA, box 3 has code "2-Excess contributions" as the distribution code.  

In TurboTax's 8889 form, $130 is not taxable.  

Therefore, in 5329, I continued to have $130 excess contribution.

And, the $130 is never added to my income in the year 2022. 

However, ProConnect treated it differently.  In 8889, $130 distribution is considered taxable.

Then, I no longer have excess contributions in 5329 after the year 2022. 

Furthermore, $130 is added to my total income.

Any comments are welcome.  

[BillM223]

Because we get into answering this, we need to know some things. 

1. You are referring to a 1099-SA, not a 1098-SA or anything like it (like an SSA-1099 or any 1098)?

2. Box 5 on the 1099-SA is not the distribution code - this is in box 3.

3. 1099-SAs with regular distributions and/or earnings in excess contributions, are not tightly tied to a tax year in TurboTax. That is, the distribution code of '2' just reports an amount to be added to taxable income for the current year, no matter if the 1099-SA was generated by events in the current year or the previous year. 

4. Did you not receive two 1099-SAs: one with a distribution code of '1' and another with a distribution code of '2'? I think that the confusion is rooted in the fact that you got one and entered it, and not the other.

Please confirm the amounts in all the boxes in your 1099-SA.

[YKChen]

Sorry about the TYPOs in my previous post.  

(1) It is 1099-SA. 

(2) It is Box 3.  

(3) I did not take any other money out from HSA (even for any medical expenses).  Thus, there is only one 1099-SA.  

[DianeW777]

It appears based on your information (removing the excess but after the filing date for 2021) that you will have a penalty for 2022. An excise tax would be required in 2022 since the excess contributions were not removed by the required date which was you filing date for your 2021 tax return (after April 18th, 2022).

Excess contributions.

You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Excess contributions aren’t deductible. Excess contributions made by your employer are included in your gross income. If the excess contribution isn’t included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return.

Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the account.

You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.

You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.

You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings.

• IRS Publication 969

[YKChen]

My question is, which of Intuit's tax software treats the withdrawal correctly?  I have used both TurboTax and ProConnect and shared the screenshots.    

[DianeW777]

In TurboTax Desktop, using most of your data the desired result on Form 8889, Line 16 may need a change to the answers. I realize you do not show any earnings on your return but there should be an amount for this.  This information comes from the holder of the HSA.  The full distribution is taxable and has a penalty that is calculated on Form 8889. Both appear on the right lines (Schedule 1 for the taxable amount and Schedule 2 for the additional tax).

Let's try another approach.  You can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions: 

TurboTax Online:

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

TurboTax CD/Download:

If you like, you can send a copy of your return that will be scrubbed to eliminate your personal data by using these steps:

1. Click on Online in the top left menu of TurboTax CD/Download for Windows
2. Select 'Send Tax File to Agent'
3. Write down or send an image of your token number then place in this issue.
4. We can then review your exact scenario for a solution.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution. 

@YKChen

[Edited: 02/23/2023 | 1:52p PST]

[YKChen]

If I have to override Form 8889, Line 16, does this mean I cannot e-file?

The article has a statement: "Returns that contain overrides cannot be e-filed." 

Has anyone tried the e-file with some line item value over-written?

[DianeW777]

Please see the updated response. Thank you for your patience.

@YKChen