Turbotax online doubles the HSA excess contribution when I use "future year method"

[BillM223]

It appears that the secondary taxpayer (I can't see names, so this is whichever taxpayer is listed second on page 1 of the 1040) has carried over $3,518 in excess HSA contributions from 2021. Is this right?

The apparent doubling is caused by this carryover being associated with the secondary taxpayer so while the message shows an excess of $3,518 for 2022, when you look at the secondary taxpayer, the carryover is added to it, to make $7,036.

As the message says, however, you can't withdraw the carryover amount from 2021, because you needed to do that by April 15, 2022. 

So withdraw the 2022 $3,518 before April 18, 2023 (yeah, an extra three days this year, and up to October 15, 2023 if you file and extension). and for 2023, reduce your normal HSA contributions by $3,518 so that the carryover will be "discharged" (on the 8889, it will look like it was a personal contribution).

Make sense?

[Ed 3/2/2023 | 12:43 PM]

[vihangk1]

It appears that the secondary taxpayer (I can't see names, so this is whichever taxpayer is listed second on page 1 of the 1040) has carried over $3,518 in excess HSA contributions from 2021. Is this right?

This is not correct. There were no excess contributions in 2021. They contributed $3600 in 2021 (I just confirmed my last year's return). Note that I did not use Turbotax in 2021. I filed it from a outside tax consultant. Why does turbo-tax think that I had excess contributions from 2021?

[BillM223]

I don't know why (Why does turbo-tax think that I had excess contributions from 2021?). Obviously, this is a situation that we see a lot (the HSA excess contribution) but I don't see why TurboTax is reporting that the secondary taxpayer has an excess of $7,036 in the dialogue.

So let's do this...when you have finished your data entry in TurboTax, (whether you marked that the primary taxpayer or the secondary taxpayer had the excess) check to see if you have a form 5329 (either -T or -S) and if you do, check Part VII (lines 42 to 49) and see if there are any numbers here. If there are none, check line 8 on Schedule 2 to make sure it is still zero.

If so, then you don't have the 6% excise tax ("penalty") on the excess.

However, I cannot get the 8889-S to have the $3,528 on the line 12B Smart Worksheet without the same number making a spurious appearance on Line 2B on the 8889-T.

Well, rather than make you wait, if you are otherwise ready to file, then what I would do is print a copy of your return, and mark 12B on the 8889-T as zero.

I do not know what the IRS will get (e-filed returns are in XML format, not PDF, so are created differently), so the IRS may never notice the difference). If, however, the IRS writes you a letter about this, just send them a copy of the 8889-T that you marked up with the explanation that this is the workaround for an issue with your tax software - you withdrew only $3,518 and it was from your spouse's HSA - nothing was withdrawn from your HSA.

Save all this discussion and your marked up 8889-T in your tax archive in case anyone ever asks.

In the meantime, I will hang on to your sanitized tax return to see if I can identify the issue.

[vihangk1]

Thanks @BillM223 I appreciate all the help. I can try these but I have the following questions?

1. How do I print the tax return? I thought TurboTax will always e-file it.

2. Last year, I had started entering data in my turbo-tax but eventually I didn't file that using turbo-tax. Is it possible that Turbotax is looking at my unsubmitted data to do some of these calculations? Can we try deleting previous year's return data from turbo-tax to see what happens?

[BillM223]

#1. Look in the upper right for Print Center. This will let you select what forms to print. Also, during the e-file process, it will ask you 2 or 3 times if you want to print a copy of your return (or at least make a PDF that you can reprint later). You should always make a copy of your return as filed, because we are always seeing comments from users who wished that they had a copy for one reason or another.

2. "Is it possible that Turbotax is looking at my unsubmitted data to do some of these calculations? " Absolutely. TurboTax doesn't know if you filed it or not.

Deleting last year's return is not enough because you would also need to delete your current year return and start over. I am guessing that you don't want to do that.

[vihangk1]

Ah I see. To print the returns I need pay first (obviously). But I am not sure I want to get into these complications if there is indeed an excess contribution shown on my returns generated by Turbo-tax. I use Turbotax because it makes it easy to file taxes online but this is now getting outside my comfort zone and I would rather pay extra to a tax consultant to deal with this for me.

Unless we are able to identify what is going on here in a day or two, I would give up on this and talk to tax advisor in-person.

Thanks so much for helping me so far. You have my sanitized tax returns already, if you find anything that is causing this do let me know. By the way, it doesn't look like Turbo-tax has any 2021 return information because it says "You didn't file with turbo-tax".

[BillM223]

Oh, right, you are Online. Let's go back to what I wrote: 

"check to see if you have a form 5329 (either -T or -S) and if you do, check Part VII (lines 42 to 49) and see if there are any numbers here. If there are none, check line 8 on Schedule 2 to make sure it is still zero."

Even in Online mode, you can see your 1040 and Schedules 1, 2, and 3.

On the left hand side (when you are in your return and able to enter things), look to the left and click on Tax Tools, then click on Tools, then in the center, click on View Tax Summary, then look back to the left and click on Preview My 1040. You will be able to scroll through the 1040 and the three schedules here.

Of course, there are other reasons that there might be penalties on the 5329 (which feeds line 8 on Schedule 2), but if line 8 is zero or blank, then we know that no excess contributions are being carried over to next year.