Correcting Excess HSA Contribution for 2017 past penalty deadline

[GardenGirl]

While working on my 2018 taxes, I realized that I have an HSA excess contribution for Tax Year 2017.  Since I am past the penalty deadline, how do I correct my mistake?  I do not understand why Turbo Tax application did not alert me on this while I was filing my 2017 taxes.  Suggestions would be appreciated.  Thanks

[IsabellaG · Accepted solution]

If you had an excess HSA contribution for 2017, you should see an entry on line 59 of your 2017 1040, and Form 5329 which shows the 6% penalty as it was computed. You would have seen a screen that said "You may want to withdraw money from your HSA." and it would have shown the amount of the over-contribution. 

If when you check your return you find that you really did have an over-contribution for 2017, and you haven't withdrawn it, you can use it as your 2018 contribution. The IRS lets you roll over the contribution to 2018, and deduct it on your 2018 tax return. So you would leave the money in the account and take the deduction. You can’t apply more than you have in excess and you can’t apply more than this year’s HSA contribution limit. If the over-contribution from 2017 plus your 2018 contributions exceed your annual limit, you'll have to withdraw this year's excess by the due date of your return, including extensions. See this article for more information.

[GardenGirl]

Thanks.  The article link fails.  Is the rollover that you refer to the same as the "Excess Contribution Correction Request Form" through the HSA custodial bank that lets me apply the excess funds to a different Tax Year?  In my case the different Tax Year would be 2018. Thanks!

[IsabellaG]

Try this: http://www.hsaedge.com/2016/11/06/how-to-remove-excess-contributions-to-an-hsa/

[IsabellaG]

Scroll to Option 2: Apply to A Future Year.

[GardenGirl]

Thank you.  On 3-9-2018 I made an hsa contribution $6175 for tax year 2017.  $3350 ended up being excess funds.  Will I be able to have the HSA Bank split that contribution so $2825 for 2017 and  (excess contribution) $3350 for 2018 ?  I would use the "Excess Contribution and Deposit Correction Request Form" from the HSA Bank to perform the rollover.

[IsabellaG · Accepted solution]

Yes, and be sure to enter this in the HSA section of TurboTax, because applying this excess as part of your 2018 contribution is treated as part of your personal contribution for 2018, so you get a deduction for it .

[GardenGirl · Accepted solution]

First, I need to amend my 2017 return because the Excess Contribution was not posted. I had Hsa "Family" set and it should have been "Self" since my husband is on Medicare.  Does the 2017 Amendment need to complete before I have the HSA Bank process the Excess Contribution rollover form?

Amend 2017, get rollover processed and submit 2018 taxes by 4-15-2019.  Is this possible?  Thanks

[IsabellaG]

Yes, that would work. The 2017 amended return wouldn't get processed by the IRS  by the time you file your 2018 return, but you can still file your 2018 return with the correct information. Do it in the order you suggested, and of course, hold on to your paperwork.

[GardenGirl]

 HSA Bank processed my "Excess Contribution and Deposit Correction Request Form" .  HSA Bank rep informed me that I have $84.24 in earned interest on this excess contribution.  I instructed the HSA Bank to leave the $84.24 in the HSA for the tax year 2019.  How do I report earned interest ($84.24)  on my excess contribution?  Will this transaction generate a 1099 ?  Thanks

[IsabellaG · Accepted solution]

Yes, you should get a 1099-SA with the earnings in box 2a distribution code 2.

[GardenGirl]

IsabellaG, thank you so much for guiding me through this and answering my numerous questions.  You have been most helpful!  I applaud you and deeply appreciate your assistance!

[IsabellaG]

You're welcome! Glad I could help!