Should I report the withdrawal of ineligible 2024 HSA contribution on my 2024 tax return, while the 1099-SA is unavailable until early 2026?

[DavidQ322]

In 2024, I made an HSA contribution but later discovered that I was ineligible to contribute further due to a conflict between my HDHP and my wife’s FSA account. After extensive online research, including utilizing ChatGPT and Perplexity AI, I withdrew both my HSA contribution and its earnings in early 2025. However, the HSA custodian has not yet issued a 1099-SA for this withdrawal, which is expected to be available in early 2026.

While this delay is acceptable, I intend to report the ineligible contribution on my 2024 tax return to indicate that I withdrew it before Tax Day (April 15, 2025) to avoid potential tax penalties. However, ChatGPT and Perplexity AI provide conflicting advice regarding whether I should report the withdrawal amount as income on this year’s return due to the absence of a 1099-SA.

I would appreciate guidance from an expert or knowledgeable individual on the appropriate course of action regarding the reporting of the ineligible contribution and earnings. Thank you for your assistance.   

[KrisD15]

Yes, you should report the excess contribution in TurboTax and also that you withdrew the excess (and earnings) before April 15, 2025. 

This will be reported on the "Line 2 Smart Worksheet" section on Form 8889 resulting in zero contributions for 2024. 

There will be no income reported. 

Next year when you get your 1099-HSA, it will be coded as a corrected withdrawal but if there were earnings, the earnings will be taxable. 

[DavidQ322]

Thanks, in "Deductions and Credits" HSA party I selected "No HDHP coverage" though I did have it in 2024, which prompted me to take the steps about handling the ineligible/excess contribution situation, and choose the excess contribution withdrawal. I then confirmed the original contribution amount was wiped out in 8889 box 3. I also reported the earnings from HSA ineligible contribution in 2024 as Other Income, which is also reflected in Schedule 1 Line 8f.

I do have another question about how to deal with the 1099-SA ("2024") when I expect to receive it in 2026 for the withdrawal and earning of 2024 HSA ineligible contribution. Should I NOT report that "2024" 1099-SA in my 2025 tax return since I've already reported and been taxed in my 2024 tax return, otherwise I would be taxed again for 2024 HSA ineligible contribution and the earning? Thanks again for your advice!

[BillM223]

When you receive a 1099-SA for the withdrawal of excess contribution (normally entered in the tax return for the year after the excess), you will have the following:

Box 1 - the excess amount that was returned

Box 2 - any earnings on that excess while it was in the HSA

Box 3 - distribution code of "2"

When the distribution code is "2", the Box 1 amount is ignored. This is because TurboTax knows that the excess was taxed in the previous year (when it was added to Other Income).

Only the Box 2 amount is added to Other Income, as it should be.

So please enter the 1099-SA as is in your 2025 tax return. All will be good.

[DavidQ322]

"Box 2 - any earnings on that excess while it was in the HSA"

"Only the Box 2 amount is added to Other Income, as it should be."

Since I’ve already entered the earning on the 2024 HSA excess contribution in the 2024 tax return, if I were to enter the same earning (assuming 1099-SA I’ll receive in Feb 2026 has the same earning amount as I reported in the 2024 return) as Other Income in the 2025 return, that earning would be double taxed (in both the 2024 and 2025 returns). That’s why I’m asking for advice on how to handle that earning part in the 1099-SA next year. Thanks!

[dmertz]

"Since I’ve already entered the earning on the 2024 HSA excess contribution in the 2024 tax return,"

That's a mistake; go back and remove the amount of earnings that you entered.  Because the earnings are taxable on the tax return for the year in which the return of excess contribution occurs, 2025 in this case, the earnings must be reported on  your 2025 tax return which you will do by entering the 2025 Form 1099-SA into 2050 TurboTax next year.