TurboTax says I have an excess contribution. Why?

[Bogart]

Why am I being penalized for my HSA contribution? My contributions were only $5000. This is below the allowable amount, so why?

[BMcCalpin]

It is possible for taxpayers to accidentally make entries in TurboTax that cause TurboTax to think that the taxpayer made an excess contribution when they haven't. Please read the following:

One of the purposes of the HSA interview is to determine your annual HSA contribution limit.

As you probably know, the maximum limits in 2017 are:

• $3,400 - individual with self-coverage
• $6,750 - individual with family coverage
• If the HSA owner is 55 or older, then you add $1,000 to these amounts.

However, these limits assume that you were in an HSA all year. If you left the HSA during the year or started Medicare or had one of a number of change events, then the limit is reduced.

There are several major culprits for excess contributions (other than just actually contributing more than the limit).

First, if you did not complete the HSA interview - that is, go all the way until you are returned to the "Your Tax Breaks" page - the limit still might be set to zero, causes a misleading excess contribution message.

There are questions all the way to the end of the interview that affect the annual contribution limit.

Second, it is not unusual for taxpayers to accidentally duplicate their contributions by mistakenly entering what they perceive to be "their" contributions into the second line on the "Let's enter your HSA contributions" screen (see screenshot below).

Normally, any employee who made contributions to his/her HSA through a payroll deduction plan has the contributions included in the amount with code "W" in box 12 on the W-2. This is on the first line on this screen (above). Don't enter the code W amount anywhere on the return other than on the W-2 page.

Third, if you weren't in HDHP coverage all 12 months, then the annual contribution limit is reduced on a per month ratio. NOTE, this means that you have to indicate when and under what type of HDHP plan you had. Be sure to answer the questions on the screen entitled "Was [name] covered by a High Deductible Health Plan in 2017?" (see screenshot below).

 Fourth, if you had a carryover of excess contributions from 2016, then this carryover is applied to 2017 as a personal contribution, which could cause an excess condition in 2017 as well. But note: if you had an excess contribution in 2016 but cured it by withdrawing the excess in early 2017, then do NOT report an "overfunding" on your 2017 return.

Fifth, the Family limit ($6,750) is for the aggregate of contributions by both taxpayers, even if both taxpayers have their own HSAs. That is, one taxpayer can’t contribute $6,750 to his/her HSA and the other contribute $3,400 to the other HSA – the $6,750 limit applies to the aggregate of all HSA contributions credited to the family (in this case, the excess contributions would be $3,400).

[akaroshin]

I have a family HSA plan in 2017. I contributed $5000 and my employer contributed $1000. Still below the family limit of $6750. But turbo tax saying I had excess contribution and i need to remove some money before the tax deadline. How can I correct my HSA information on turbotax?

[PaulaM]

Did you indicate that you had an HDHP? That is generally, the most frequent cause of an excess contribution calculation. Walk through the entire HSA section and take note of the issues that BMcCalpin listed in the previous post.

[Benjamine]

I have followed all advice suggested to correct the error (redid interview, etc.) that indicates my spouse had an excess contribution of  $3,000 but still receive the same message.  We had a Family HDHP for all of 2018 and I do have an HSA account but  NO contribution was made this year.   Form 5329 is blank so can I just ignore this glitch?  Is there another area I need to review to ensure we are not paying an additional 6% tax on some other portion of our tax?  Thank you!