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

[vihangk1]

I am married filing jointly with my spouse. Unfortunately, I misunderstood the contribution limits for HSA. I contributed $7198 to my HSA account since I had a HDHP family coverage. My wife had a self-only HDHP from her employer and she contributed $3619 to her HSA account. I realize that I over-contributed now and the $7300 applies to both of us combined and we have a excess contribution of $3518. To fix the excess contribution, I asked the HSA trustee for my wife's account to remove all the excess contributions from her account and apply them to 2023 year (future year method). When TT asks me who contributed the excess, if I select my spouse it doubles the excess contribution amount to $7036. If I select myself as the one who made excess contributions, it correctly points that we have $3518 of excess contributions.

Unfortunately, I cannot withdraw the excess of $3518 from my HSA account because the HSA trustee changed in the last year and it is easier for me to withdraw the excess from my wife's account.

Can someone help me why TT thinks that excess contribution is $7036 if I select my spouse to be one who would withdraw the excess contribution instead of me?

[BillM223]

I am puzzled, in that what you are reporting is not consistent with what I see TurboTax doing.

When TurboTax tells you that there are excess contributions, on the screen where it asks you "Who made the excess HSA contribution?" does it not give you three choices: you, your spouse, and "both of us"? And no matter which I select, the excess remains the same.

IS there something else about your situation that you haven't told us, like one of you had excess HSA contributions from the previous year? Or did you enter Family coverage on one pass and Self-only on the other pass?

[vihangk1]

Thanks a lot for the response.

>> Who made the excess HSA contribution?" does it not give you three choices: you, your spouse, and "both of us"? And no matter which I select, the excess remains the same.

It does give me three choices like you mentioned above. However, when I select my spouse it doubles the excess contribution on the next screen. If I select myself, it shows the excess contribution correctly.

We didn't have excess HSA contributions from previous year. I did enter family coverage for myself when it asks for how many months did I have HDHP. I had HDHP family coverage (me and my son) for 11 months instead of the whole year. My wife had HDHP self only coverage for the entire year.

Please let me know if I am missing something. Thanks again!

[BillM223]

Which month did you not have Family coverage? January or December?

[vihangk1]

I didn't have family coverage in January (I had a non-HDHP plan from my previous employer in that month)

[BillM223]

I have a test return that shows to the dollar what you describe - except it doesn't double the excess when I pick the spouse as the person with the excess. There is still something different about your return.

OK, let's start over.

xxxxxxxxxxxxxx You xxx Spouse

W-2 code W       7,198      3,518

inherit HSA?        No           No

direct conts          0              0 - direct contributions not through the W-2

Employer other conts?  No    No

Medicare?            No       No

HDHP                    Yes        Yes

Type of HDHP      different types  Self-only all year

(HDHP)                  Family    Self-only

months               2/22 to 12/22   1/22 to 12/22

Who made the excess of 3,517?

you

spouse

both

Did you Overfund your HSA in 2021? (it doesn't ask which who)...

No

You may want to withdraw money from your HSAs - and it's always 3,517...

OK, write this down and walk through your return and let me know what is different in your interview.

[vihangk1]

xxxxxxxxxxxxxx You xxx Spouse

W-2 code W       7,198.18      3,619.98

inherit HSA?        No           No

direct conts          0              0 -Any contributions you personally made

Employer other conts?  No    No

Medicare?            No       No

HDHP                    Yes        Yes

Type of HDHP      different types  Self-only all year

(HDHP)                  Family Plan    Self-only

months               2/22 to 12/22   1/22 to 12/22

Who made the excess of 3,518?

you

spouse -- I select spouse

both

Did you Overfund your HSA in 2021? (it doesn't ask which who)...

No

You may want to withdraw money from your HSAs

It looks like spouse has an excess contribution of $7036. This amount is being taxed at extra 6%

But, anything withdrawn between January 1 and April 18, 2023 avoids this additional tax.

Option 1 - Ok, we will withdraw full excess contribution of $7036 by April 18, 2023

Option 2 - We will withdraw some of the excess contribution by April 18, 2023

                    Unfortunately, some of your excess contribution is caused by a prior year excess contribution. While it is too late to remove prior year excess contribution, you can still remove upto $3518 contributed for 2022

                    Excess employer and payroll contributions ... $3518

Option 3 - No we are not going to make this withdrawal

xxxxxxxxxxxxxxxxxxxxx

If I select myself in Who made the excess of 3,518? I get the following prompts

It looks like <me> has an excess contribution of $3518

Option 1 - Ok, we will withdraw full excess contribution of $3518 by April 18, 2023

Option 2 - We will withdraw some of the excess contribution by April 18, 2023

                     Great, tell us how much you have withdrawn or will withdraw.

                     Excess employer and payroll contributions ... $3518

Option 3 - No we are not going to make this withdrawal

Let me know if that helps. I am confused why it says that "It looks like spouse has an excess contribution of $7036." above.

Thanks a lot for your help!

[vihangk1]

xxxxxxxxxxxxxx You xxx Spouse

W-2 code W       7,198.18      3,619.98

inherit HSA?        No           No

direct conts          0              0 -Any contributions you personally made

Employer other conts?  No    No

Medicare?            No       No

HDHP                    Yes        Yes

Type of HDHP      different types  Self-only all year

(HDHP)                  Family Plan    Self-only

months               2/22 to 12/22   1/22 to 12/22

Who made the excess of 3,518?

you

spouse -- I select spouse

both

Did you Overfund your HSA in 2021? (it doesn't ask which who)...

No

You may want to withdraw money from your HSAs

It looks like spouse has an excess contribution of $7036. This amount is being taxed at extra 6%

But, anything withdrawn between January 1 and April 18, 2023 avoids this additional tax.

Option 1 - Ok, we will withdraw full excess contribution of $7036 by April 18, 2023

Option 2 - We will withdraw some of the excess contribution by April 18, 2023

                    Unfortunately, some of your excess contribution is caused by a prior year excess contribution. While it is too late to remove prior year excess contribution, you can still remove upto $3518 contributed for 2022

                    Excess employer and payroll contributions ... $3518

Option 3 - No we are not going to make this withdrawal

xxxxxxxxxxxxxxxxxxxxx

If I select myself in Who made the excess of 3,518? I get the following prompts

It looks like <me> has an excess contribution of $3518

Option 1 - Ok, we will withdraw full excess contribution of $3518 by April 18, 2023

Option 2 - We will withdraw some of the excess contribution by April 18, 2023

                     Great, tell us how much you have withdrawn or will withdraw.

                     Excess employer and payroll contributions ... $3518

Option 3 - No we are not going to make this withdrawal

Let me know if that helps. I am confused why it says that "It looks like spouse has an excess contribution of $7036." above.

Thanks a lot for your help!

[vihangk1]

Another point that might be relevant to you is my spouse had a self-only HDHP plan in 2021 and had total contributions of $1500 in 2021.

[BillM223]

No, the most relevant thing was staring me in the face - you are using Online as you said all along, but I test in the CD/download version (much easier to test this way because I can see all forms at any time).

What this suggests to me is that I have reproduce your entries in the Online version, in case it works differently. Historically, this has not been an issue in the HSA processing, but now that I know this, I have to rule it out.

When I make a test similar to yours (must not be exact because the excess is somewhat different), I see a message that may be easy to misread"

You see the $6,517 total? There is a subsequent reference to $3,619. This is because the $7,300 Family annual HSA contribution limit is shared between the taxpayers (something you realize now). TurboTax allocates the $7,300 is it see fit. At the end of this processing, there is $3,619 that could be shared one way or the other. So TurboTax is asking how to do it. 

The excess in my case is $6,517 on two screens hence no matter which bullet point you pick (you, your spouse, or both). However, the amount for each person may change depending on how the Family limit is split.

Please go back and see if this is what your tax return really says. 

[vihangk1]

I don't see anything like that in my screen. Attached my screenshot below. Does it make a difference if you use premium edition of Turbotax online?

[HopeS]

To correctly report the excess HSA contributions is for you to take the excess from your account. To avoid penalty you have until October 15th if you filed an extension to withdraw the excess.

However please be aware that there is $7,300 family limit applies to married couples even if one spouse is covered by a family plan and the other spouse has their own individual plan. In this scenario, the couple may split their contributions any way they like, as long as the couple's total contribution doesn't exceed $7,300. Spouses 55 or older at the end of 2022 are allowed to contribute an additional $1,000 to their own HSA.

If you overfunded or weren't eligible to contribute to your HSA in 2022, you'll need to withdraw the excess amount by April 17, 2023 to avoid a penalty (October 15 if you filed an extension).

Some things to keep in mind:

• The above limits are prorated depending on the number of months you were covered by an HDHP and had no additional health coverage
• If you were only covered by an HDHP for part of the year, your contribution limit may be lower than above limits
• If you're covered by an HDHP on the first day of the month, you're considered covered for the entire month
• If you had HDHP coverage on December 1 (the last month of the year), then you can use the full annual HSA contribution limit for your HDHP coverage, regardless of the number of months you had coverage
• Spouses on separate plans: The $7,300 family limit applies to married couples even if one spouse is covered by a family plan and the other spouse has their own individual plan. In this scenario, the couple may split their contributions any way they like, as long as the couple's total contribution doesn't exceed $7,300. Spouses 55 or older at the end of 2022 are allowed to contribute an additional $1,000 to their own HSA

Here are a few options for getting rid of excess contributions:

• You can simply take a nonqualified withdrawal of the excess amount. This distribution will be taxable and subject to a 20% penalty.
• You can take qualified withdrawals (for medical expenses) that take your HSA balance to $0. The penalty is assessed on the lower of your excess contribution or your HSA balance at the end of the tax year. By drawing the account down to $0, you will have no more penalty assessed.
• You can change your health insurance plan back to an HDHP that is HSA-eligible again. This will allow you to use up the excess contribution.

We recommend revisiting the HSA entry:

Online Instruction

@vihangk1 

[vihangk1]

The last message isn’t very helpful to me. I was told that I can apply the excess contributions to 2023 tax year and hence I don’t want to zero out my HSA account for no reason.

My concern is I cannot tell turbotax that I withdrew from my spouse’s account without it wrongly saying that the excess is $7016. I tried calling my HSA provider and unfortunately they cannot withdraw the funds because my employer switched the HSA providers from 2023 and hence the old provider has no funds to withdraw.

Does it matter for the return if I withdraw from my spouse’s account but tell turbotax that I withdrew from my own account? Does the tax return specify which account was used to withdraw the excess or just that the excess was withdrawn.

[BillM223]

"Does it make a difference if you use premium edition of Turbotax online?" - it might. Unfortunately, since the "Premium" product is quite recent, I don't have any tests set up in that product.

However, I am still intrigued by this "doubling" of the excess. I see that you know how to create a redacted screenshot - can you make me another two screenshots, one with the lower excess amount and the other with the doubled amount? Thanks.

As for whose account the excess comes from, normally it would not make any difference. Why? Because of the dynamic way that TurboTax allocates the Family contribution limit. TurboTax starts out with one spouse getting all the limit, then sending a lot to the other spouse. The result is that the excess is generally from a "virtual HSA".

So why the question? So that the two 8889s can be completed.

So we have two choices:

1. We keep trading screenshots until I finally figure out what happened, or

2. You send me a sanitized version of your tax return so I can see exactly why your return is acting the way it is.

A "sanitized" return is one in which all the personally identifiable information is removed by the process and then the return is stored in a data base that we have access to.

To send me this sanitized return, you need to send me a "token", which is a pointer in the database to your sanitized return. If you would like to do that (it would save a lot of back-and-forth), please do the following:

To send us a token, please do the following: 

TurboTax Online:  

Click Tax Tools in the menu to the left.

Click Tools, and then

Click Share my file with Agent.

A pop-up message will appear. Click OK to send the sanitized diagnostic copy to us.

Provide the token number that is generated onto this thread.

TurboTax Desktop:

Select Online menu if the customer is using Windows. Select “Help” if using a Mac.

Select Send Tax File to Agent.

A pop-up message will appear, and the customer will select, Send. If using Mac "Send Tax File to TurboTax Agent" 

Note: Desktop will save a file to your computer unless you uncheck the box.

Another message will appear. Provide the token number that is generated onto this thread.

At the bottom of your reply (with the token) add "@" "BillM223" (without the space in between) so I will be notified.

This will let us see what is happening on your return. Thanks.

[vihangk1]

Token number 1085382

@BillM223 

Thanks a lot for your help!