You may want to withdraw money from your HSAs - 2023

[Taxesarefun3]

For this question for HSA, there are two boxes for "Amount withdrawn by April 15, 2024". One under "Excess employer and payroll contributions" and another for "Excess personal contributions".

Prior year excess contributions.                                     $X,XXX

Excess employer and payroll contributions                $X,XXX

Amount withdrawn by April 15, 2024                               ?

Excess personal contributions                                       $X,XXX

Amount withdrawn by April 15, 2024                               ?

Both have amounts next to them and I am wondering if withdraws include taking money out of the HSA to pay for out of pocket medical expenses counts? Does these count as a withdrawals? 

If not, does that mean I choose "No, we're not going to make this withdrawal"?

If it does count as a withdrawal, then which "Excess" box do I enter for "Amount withdrawn by April 15, 2024", for employer excess or for employee excess? I only have one HSA account and both me and my employer contribute to it. I spend from one HSA account.  How do I know if any withdraws come from the Employer or the Employee excess?

Are withdrawals considered non-medical related expenses? I made no non-medical withdraws from my HSA before April 15, 2024.  Please help clarify these questions.

[BillM223]

"Withdrawals" do NOT include money taken out of the HSA for medical expenses, instead, withdrawals refer only to amount taken out at your request to the HSA custodian. That is, you completed a "Withdrawal of Excess Contributions" form, generally available on your HSA custodian's website (or just call them) and sent to them (or completed it online).

Withdrawals (in most cases) are treated differently than non-medical expenses. A withdrawal of excess contributions done before April 15 of the following year (4/15/2025 for current returns) is just a "do-over" - you withdraw the money that you didn't mean to contribute, you report it as income (if it originally was on your W-2), and all is good. A withdrawal for non-medical expense under other circumstances incurs not only income tax but also a 20% penalty.

Oh, I see that you are asking about tax year 2023. This is a different thing. You cannot withdraw excess contributions after April 15th of the following year. In your case, for tax year 2023, you should have withdrawn the excess amount before April 15, 2024. Once that date passed, the only (but see next paragraph) way to "cure" the excess is to do the non-medical expense withdrawal that you were speaking of. And, yes, this would incur the income tax and 20% penalty.

A cheaper way to deal with this is to reduce your active contributions for the current year, then TurboTax will try to apply the carryover of the excess from the previous year to the current year, as if it were a current year personal contribution. Then there will be no penalty at all - but it means that you have to reduce your contributions for a year.

 Make sense?