HSA Over Contribution

[magwu18]

I have an HSA and I always max out my contributions every year.  I meet the requirements of having an individual HDHP for the entire year.  I also participate in a movement program offered by my health insurance provider and it contributes money towards my HSA every quarter. 

In January of 2022, my HSA said that I had $336 left to contribute for 2021.  I contacted my HSA bank as there was a deposit from my movement program in January that was not counted in the 2021 contribution totals (the January 2021 deposit applied to 2020).  I was told that the money was going towards 2022 since that is when it was deposited, so I contributed the $336 that the bank said I had left to contribute for 2021.  I filled out my taxes to show that I has maxed out the contribution for 2021 ($3600 total between what I had taken out of my paycheck, the movement program and the additional funds in 2022 to max it out) . 

I checked in January of 2023 to see how much I would need to add to max out for 2022 and it was a much higher amount then I expected.  I pulled my updated 5498 from the previous year (which included contributions made in 2022 for 2021) and it ends up that the money deposited by the movement program in January of 2022 went towards 2021 instead of the 2022 that they told me.  According to this, I now have an over contribution to my HSA for 2021 since the $336 I deposited was calculated with the movement funds in 2022.  I have not received any notification that I am over for 2021, but  based on the 5498, I am over by the dollar amount contributed by the movement program.  The TurboTax software asks me to enter the amount from line 48 on my 2021 Form 5329.  I do not have a Form 5329 and I want to make sure that I take care of this issue correctly.  Do I just put the amount that I have calculated that I am over?  It then asks for the HSA balance as of 12/31/2022 that includes any contributions made in 2023 for 2022.  Do I subtract the amount that I am pulling out to correct the issue?  Also, I have a large chunk of my HSA invested, so do I need to include the invested amount in that total?  Is that anything else that I need to keep track of or account for in order to get this fixed on my 2022 taxes?  Thanks in advance for any assistance.

[BillM223]

"I have not received any notification that I am over for 2021"

The only entity that will report that you have made excess HSA contributions is TurboTax while doing your tax return.  The HSA custodian may imply that they know, but they don't, because they don't know what is going on your tax return.

Employers and third party entities are a constant problem in that you just never know what they are actually going to deposit an HSA contribution - even when they tell you they will do it by a certain date for a certain year, they can't be depended on to actually do it.

The safest thing for you is for you to not play too close to the edge. Contribute most money through your employer, because this saves you Social Security and Medicare tax (HSA contributions are not subject to either), but in February or March or so, check what has actually been contributed by your employer and third party benefits group, and then make a direct contribution to your HSA to fill up the year. MAKE SURE the HSA custodian understands that this contribution after the end of the year is for the previous year.

"The TurboTax software asks me to enter the amount from line 48 on my 2021 Form 5329.  I do not have a Form 5329 and I want to make sure that I take care of this issue correctly. "

When you entered your 2021 return into TurboTax, you did not enter data showing an excess, because you had been misled as to when deposits had been made. So there was no 5329 to show the penalty for the carry over of excess contributions to 2022.

To fix this situation, you will have to stop working on your 2022 return, go back and amend our 2021 return to show the actual HSA contributions (which should trigger the excess), let the 2021 excess carry over to 2022 (you can no longer withdraw the 2021 excess because it needed to have been withdrawn by the due date of the 2021 return), then do your 2022 return.

To do your 2022 return, you have two choices: (1) delete what you have done so far on 2022 and re-import the 2021 return to 2022, or (2) resume what you are doing in the 2022 return and when you are asked if you overfunded your 2021 return, answer Yes and then when you asks you how much excess contributions were carried over, enter the amount of the excess that was reported to you when you amended your 2021 return.

If you continued to maximize your HSA contributions in 2022, then this carry over will likely cause another excess on your 2022 tax return. 

"Do I just put the amount that I have calculated that I am over? " No, put the amount you are over when you amend your 2021 return.

"Do I subtract the amount that I am pulling out to correct the issue? " No, the withdrawal of excess contributions is not retroactive.

"Also, I have a large chunk of my HSA invested, so do I need to include the invested amount in that total? " Your 5498-SA for 2022, if you have it yet, will have a box with the value of your HSA for 12/31/2022. If you don't have the 5498-SA for 2022 yet (HSA custodians are lackadaisical about when they send this), just go on the website and see if it tells you and in the worst case, just call them and ask.

Questions?

[magwu18]

Hi @BillM223,

Thank you so much for the information.  I have done an amended return for 2021 and it has given me the information that I need for my 2022 taxes.  Does the amended 2021 return need to be received or processed by the IRS before I file my 2022 taxes? 

Also, in terms of the excess money that got contributed for 2021.  I have not yet maxed out my HSA contributions for 2022 ($463 still left to contribute), should I leave the excess contribution of $276 in my HSA and apply it towards 2022?  Or should I withdraw it and then contribute the $463 separately?  My HSA bank gives both options on their Excess Contribution Request form to either remove the excess or apply it to the new year.  From what I understand, I will keep getting charged the 6% excise fee each year if I do not remediate the excess contribution in some way. 

Thanks!

[BillM223]

"Does the amended 2021 return need to be received or processed by the IRS before I file my 2022 taxes? "

No. Yes, it would be nice in a perfect world, but since you can e-file your 2022 return, but couldn't e-file amended returns (through TurboTax, anyway), just sign and mail the amended return and go ahead and e-file the current return without worrying about arrival dates. Be sure to keep copies of both the amended 2021 and current 2022 returns, in case someone (like the IRS) write you a letter asking about them.

"I will keep getting charged the 6% excise fee each year if I do not remediate the excess contribution in some way." Generally true.

"should I withdraw it " - it is too late to withdraw the excess for 2021 (that deadline was April 15 (or so) 2022). The only thing you can do is to let it carry over to tax year 2022 (the return you are doing now).

Be sure to not contribute any more than $187 ($463-$276) for 2022. This will leave $276 "space" for 2022. The carryover will be charged off as if it were a personal contribution. Unfortunately, the form 8889 does not show this clearly. You will know that this worked when there is no form 5329 showing a penalty in Part VII. 

Make sense?