Hi, hoping to get some help with an HSA situation. In 2022/2023, I made the maximum contributions to my HSA ($3650/$3850) via employer contributions. In early 2024, I learned that those contributions were ineligible. I removed the 2023 contributions before Tax Day and amended my 2022 return to reflect the excess. So for my 2022 and 2023 returns, I had $3650 excess. By the time I realized this, I'd already contributed to my HSA for 2024, which I was eligible for ($4150). I then distributed $3650 worth of 2024 contributions as excess. In summary, I have the following for 2024:$3650 excess carried over from 2022 -> 2023$7500 = $3850 (from 2023) + $3650 (from 2024) of returned excess contributions$4150 of new employer contributionsSo my net contribution for 2024 should be only $4150. When I try to enter my 1099-SA, it still shows that I have a carried-over balance. Looking at Forms 5329 and 8889, the excess contribution hasn't affected either the $4150 new contributions or the $3650 carryover, nor is there any tax levied on the returned excesses. My 1099-SA has a distribution code of 2 (box 3). How can I set the forms to correctly reflect that the return of excess should balance out the contributions? Thanks in advance.

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a908234

Solved

HSA excess contribution still showing after removal of excess contribution

Forum|Forum|1 year ago
February 24, 2025
1 reply
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Hi, hoping to get some help with an HSA situation.

In 2022/2023, I made the maximum contributions to my HSA ($3650/$3850) via employer contributions.

In early 2024, I learned that those contributions were ineligible. I removed the 2023 contributions before Tax Day and amended my 2022 return to reflect the excess. So for my 2022 and 2023 returns, I had $3650 excess.

By the time I realized this, I'd already contributed to my HSA for 2024, which I was eligible for ($4150). I then distributed $3650 worth of 2024 contributions as excess.

In summary, I have the following for 2024:

$3650 excess carried over from 2022 -> 2023
$7500 = $3850 (from 2023) + $3650 (from 2024) of returned excess contributions
$4150 of new employer contributions

So my net contribution for 2024 should be only $4150.

When I try to enter my 1099-SA, it still shows that I have a carried-over balance. Looking at Forms 5329 and 8889, the excess contribution hasn't affected either the $4150 new contributions or the $3650 carryover, nor is there any tax levied on the returned excesses.

My 1099-SA has a distribution code of 2 (box 3).

How can I set the forms to correctly reflect that the return of excess should balance out the contributions?

Thanks in advance.

TurboTax Home & Biz Windows

Best answer by BillM223

@BillM223 , yes my contributions were through my employer, so I need to justify the 1099-SA.

I first funded the HSA in 2022, though as I've mentioned, I wasn't HSA-eligible until 2024. I've also been tracking my HSA-eligible expenses since 2022. Between 2022-2024, I am just shy of $3,650 in expenses. Adding expenses from early 2025 puts me over the $3,650 threshold.

***

Now that we're on the same page about the $4,150 being through my employer, I do want to revisit the previous idea I mentioned. Instead of doing the above, could I make $3,650 as a personal contribution for TY 2024? Then I will have $4,150 (employer) + $3,650 (personal) + $3,650 (carryover) total contributions, of which TT says I can withdraw $3,650. That's the same amount as the 1099-SA.

(This is what my HSA custodian suggested I may be able to do.)

Yes. 😉

Make a personal contribution of $3,650 (in addition to all the other stuff, the $3,650 carryover and the $4,150 employer contribution).

And THEN, the 1099-SA will work ;-). And next year, the carryover will be gone, and hopefully this will never happen again 😉

dmertz

Employee

"By the time I realized this, I'd already contributed to my HSA for 2024, which I was eligible for ($4150). I then distributed $3650 worth of 2024 contributions as excess."

This is the problem. Only actual excess contributions are eligible for return and none of the $4,150 deposited as a 2024 contribution was actually an excess contribution for 2024 on its own. Because of this, TurboTax does not allow you to claim that any of the 2024 contribution was returned.

Unfortunately, there is no good workaround for this situation. Technically the $3,650 distributed constitutes an ordinary distribution rather than a return of contribution (since no return of contribution before the due date of your tax return was actually permitted). You could report it as an ordinary taxable distribution (code 1 in box 3 with nothing in box 2) and provide explanation with your printed and mailed tax return, but that would subject you to a 20% extra tax on the $3,650. The only other alternative I can think of would be to change the amount entered with code W in box 12 on TurboTax's 1099-R form to show only $500 contributed for 2024, but I can't say that that the IRS would agree with that. It would disagree with the amount shown on the Form 5498-SA issued by the HSA custodian and would disagree with the amount shown on the W-2 provided to the IRS by your employer.

a908234Author

Thanks @dmertz . Not sure how I missed your reply.

Since it's still before the tax filing deadline, could I just contribute an additional $3650 to my HSA? Then there would actually be an excess contribution for my return of excess to correspond to.

BillM223

What should have happened (sorry but I am having trouble following the sequence of events) is this:

When you amended your 2022 return, the entire $3,650 was added to your Other Income and you were assessed a 6% penalty on the carry over to 2023.

In TurboTax, the carryover from the previous year is included in line 2 (form 8889) as a "personal contribution" of the current year. So the carryover of $3,650 was put in line 2 of the 8889 for 2023. NOTE: up until recently, the carryover was added invisibly to line 2, that is, it did not print but the rest of the arithmetic assumed it was there.

I think that you withdrew the excess $3,850 contributions for 2023, because you had a total of $7,500 in excess, and $3,850 were for the current year, so the $3,850 could be withdrawn as excess contributions for 2023. Then the $3,650 was taxed 6% again and rolled over to 2024.

Again, in 2024, the rollover ($3,650) is placed (at least in our imagination) on line 2 of the 8889. You contributed $4,150, for a total of $7,800 in contributions, and the excess contributions reported as $3,650, right?

As dmertz noted when you took a distribution of $4,150 in 2024, you told the HSA custodian it was an excess contribution (so the 1099-SA code was 2 in box 3), but to TurboTax it was not a withdrawal of excess since none of the $4,150 contributed in 2024 was in excess, and you cannot withdraw the excess from a prior year return this way.

So, what to do...

Stop contributing to your HSA ;-).

No, seriously, don't add another $3,650 this year. Are you going to be under HDHP coverage for all of 2025?

If so, let's try this:

1. Contact your HSA custodian and report that the withdrawal of $4,150 in 2024 was a Mistaken Distribution. You will have to complete a form and send them a check for $4,150. Grovel if you need to because they don't have to accept this request. If they accept this, that cures your 1099-SA problem. (you can just ignore the 1099-SA that you got)

2. Contribute only $650 this year. Remember that you have a carryover of $3,650 to line 2, and if you don't contribute any more than $650 (this is both you and your employer combined), then your total contributions will be $4,300, which is exactly the limit for 2025.

3. You will be dinged another 6% for the carryover of 2024 to 2025, but that really can't be avoided, unless you want to start changing forms, which is, as dmertz pointed out, how you come to the attention of the IRS.

4. When the carryover of $3,650 is used up in tax year 2025, the carryover is gone - you will not see it any more.

5. Starting in 2026 (tax year, that is, in early 2027), you can start fresh, contributing the max again.

Does that work for you?

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