Question

Excess HSA distribution not matching increase in taxable income

Forum|Forum|2 years ago
April 13, 2024
1 reply
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Did not know until signing up for Medicare at the end of 2023 that this made me ineligible to use an HSA for the last 6 months of 2023. Total was included under box 12c with code W on the W2. Married, over 65.

I asked custodian to remove the excess, and they calculated and did so before the end of 2023. They reported Gross distribution in 1099-SA as 3,715 with a distribution code 2 for excess contribution. I believe they removed the amounts from each pay period after 6/30/23 until the error was recognized and calculated interest.

Turbotax calculated that I could have contributed more for the 6 months I was eligible and wants to add only 2331 to my taxable income. I have paid medical expenses which could cover the difference, but I'm concerned that the difference between the 1099-SA with a distribution code of 2 for excess contribution , and the lower additional taxable income reported by Turbotax is a red flag to the IRS ?

Thank you in advance for your time and advice

B

BillM223

"I'm concerned that the difference between the 1099-SA with a distribution code of 2 for excess contribution , and the lower additional taxable income reported by Turbotax is a red flag to the IRS ?"

I have not heard that the IRS has paid close attention to this. Besides, there might actually be a good reason for it.

So, so long you have qualifying medical expenses that you can apply to the $1,384 difference, I would not be greatly concerned. Please document what they are and stick it in your tax file.

Since you are now on Medicare, this issue won't come up again - you'll never be able to contribute to an HSA again, and you can distribute funds from the HSA until they run out.

NOTE, since you are probably 65+, you can take funds out of the HSA as if it were an IRA - no penalty. Still, you pay income tax on the withdrawal, so unless you have a gazillion dollars in your HSA, you might as well save it for the medical expenses (on which you don't pay income tax)...

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