Incorrect Excess HSA Contribution

[stanshoe]

My wife and I contributed $6000 to an HSA account in 2019.  We have a 1099-SA which shows Gross Distributions of $3180 (Distribution Code 1).  After entering this data, Turbo Tax is showing the entire $6000 an EXCESS HSA Contribution for 2019 and advises me to withdraw the entire $6000 from the account.

Turbo Tax seems to be ignoring the data entered from the 1099.  It shows whatever 2019 HSA contribution amount I enter as the excess HSA amount.  e.g. I changed the 2019 contribution to $3180 and Turbo Tax returned a 2019 excess payment of $3180.  

[Opus 17]

A regular withdrawal for medical expenses is not the same as a withdrawal of excess (unallowed) contributions.

First, if you and your spouse were enrolled in HSA-eligible insurance for the entire year, your limit would be $7000 (unless over age 55 which would raise your limit.)

If you are being told you have excess, the most likely reason is you did not finish the interview and are jumping around from piece to piece.  Turbotax assumes your contributions are non-allowed until you finish the health insurance interview and tell the program that you had qualifying HDHP insurance and were not covered by any other insurance for the whole year.  I believe this can be accessed both from the 1099-SA interview and from the HSA interview on the deductions and credits page.  Make sure you complete these sections.

If you did not have eligible contributions, and indeed had excess (not allowed) contributions, then to withdraw them is a special procedure, not a regular withdrawal.  If you withdrew money through normal channels you must use it for medical expenses or it is subject to income tax and a penalty.

[stanshoe]

Thank you.  I failed to answer the question about HDHC coverage so as you said, the program assumed all payments were non-deductible.  Answering that question solved the problem.

[allen12345]

Thank you. I just realized that 2020 tax filing has an incorrect amount in HSA excess in Form 5329. turbotax somehow takes all my HSA contribution (which is within the limits) as overfund. Is there anything I need to do about it to correct? 

[BillM223]

"turbotax somehow takes all my HSA contribution (which is within the limits) as overfund"

This description is consistent with you not completing the HSA interview and indicating what type of HDHP insurance you had and for which months. If you fail to enter any HDHP coverage, then all of your contributions will be considered to be excess, because the calculated annual HSA contribution limit would be zero.

So please return to the HSA interview and complete all the entries. Do a Search for hsa (upper right) and click on the jump-to link. Just type hsa and hit Enter, ignore all the suggested search parms. (Mac users must use the topic list for hsa).

[allen12345]

Thanks, this is helpful!

Since I'm already filed 2020 tax with incorrect HSA excess contribution amount.

Can I file any amendment now to correct this?

[TeresaM]

Yes, in most cases you can file an amendment for additional refund for three years from the original due date of the return. If you filed with TurboTax for 2020, there is no cost for the amendment software and you can follow the steps above for the 2020 return to be sure you were not penalized for excess HSA contributions.

This TurboTax Help article has step by step directions to amend your return. Amend 2020 return