Why am I getting a Form 8889 adjustment to income?

[RichInPitt]

On form 8889 (HSAs), there are a few key lines:

Line 2 - Contributions you made for 2022, outside employer contributions.  I made none - all were through  employer deductions, so this is $0

Line 8 - This is the limit of allowed contributions for the year.  I'm over 55, so it's the standard $7,300 plus the over 55 $1,000 so $8,300

Line 11 - This is the amount of employer contributions for the year - 9A on the worksheet, and then nothing else.  Mine is $8,200 because my employer screwed up and cut it off at last year's limit. - So $8,200

Line 12 is line 11 minus line 8 - the amount under the limit that was contributed - so mine is $100

Line 13 is the smaller of line 2 ($0) and line 12 ($100) and TurboTax calculates this as $100.  It then transfers this as a credit to Schedule 1, Section 2, Line 13, flowing through to 1040 Line 10, giving me a $100 taxable  income reduction.

Call me crazy, but it seems to me that the smaller of $0 and $100 is $0.  I shouldn't get a credit just for the amount under the annual limit I withheld.

Any idea what's going on, before I override it with $0?

[RichInPitt]

Just as a comparison, I also did my daughter's taxes.   She has $0 direct contributions on Line 2,  $3,6500 on line 8 (she's single), and the $2,000 contributed through her employer on 11.

Line 12 calculates the $1,650 under the maximum accurately, and then correctly calculated the smaller of 1,650 and 0 to be 0 for line 12.

So hers seems to do the math correctly.

[BillM223 · Accepted solution]

Is it possible that you had a carryover excess HSA contribution from 2021? And is it possible that line 2 was blank and not 0 (zero)?

If so, TurboTax is applying your excess HSA contribution carryover (well, $100 of it, anyway) to your 2021 tax return. The issue that is confusing is that form 8889 doesn't have a good way to show this. So TurboTax treats the carryover as a direct contribution in line 2 but doesn't print it in line 2 (because you didn't contribute it in 2022, so that would generate even more questions).

The result is that the imaginary number in line 2 is larger than $100 in your case, so for line 13, the choice is correct - but it just doesn't show you why line 12 is smaller than line 2.

If that doesn't fit your situation, come back and tell us.

[RichInPitt]

I did have an excess last year (employer screwed up the other way), so that would explain it.  But the printed line is definitely 0, not blank.

Is there some other form from which this number originates?  It seems odd for the instructions to explicitly provide a calculation and then to ignore it.   There is a "You may be able to deduct excess contributions for previous years that are still in your HSA." note in the 8889 instructions, but no indications on what this means/how to do so.

I did fill out a 5329 last year for the excess, and the $100 is on line 43/45 of this year's 5329.  Will the IRS just know that's where it must have come from?

I'm just trying to avoid any delays in a substantial refund this year. My daughter was caught in the non-electronic filing trap last year and it took 5 months for her refund.

Thanks for the help.

[BillM223]

The issue is that while the IRS describes a way to handle excess HSA contribution carryovers by "using" the carryover up in the subsequent year, the IRS does not provide a way for you to describe this on the 8889.

The IRS - in a Powerpoint for Vista volunteers (good people, but not authoritative) suggests that the excess carried over should reduce the annual HSA contribution limit in the following year. But there is no documentation in the 8889 instructions for doing this. 

Instead, in the Instructions for form 8889 (page 6), the IRS say, "The excess contributions you can deduct in the current year is the lesser of the following two amounts. • Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year." That is in 2022, you use your normal HSA contribution limit, subtract what you have otherwise contributed in the current year, and if there is anything left, you can "use up" that much excess.

That's the calculation the form actually does, but as you point out, the form doesn't make sense when you do that either. TurboTax has to plug in the amount of the carryover to be used before the form knows how big it can be.

Well, no matter, just take my word for it that there is no good way on the 8889 to do this, so the designers of TurboTax just chose one, with the result that the form's arithmetic seems odd. So don't let that mysterious calculation bother you. You could use up only $100 in the 2021 carryover in 2022, and so the form made it work.

In the past line 2 has been blank, not zero, but it confusing either way. But thanks for pointing this out.

So, two things: yes, the IRS will know where the 5329 numbers are coming from (if they think about it), and no, this odd looking 8889 will not hold up your filing.

I have seen many returns in the last 7 years in which line 2 was blank or 0 because of excess carryover being used up, and have never had complaints about being unable to file.

So please continue with your filing.