Question

HSA

Forum|Forum|5 years ago
May 7, 2021
1 reply
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I had a prior year excess contribution to my HSA resulting in a taxable amount. In the past filing year, 2020, I had qualified medical expenses that resulted in distributions from the HSA (I have a1099-SA) that reduced entirely the excess contribution and would have eliminated the tax burden. The TuboTax software did not seem to take into consideration the distribution, only asking what my year-end HSA value amount was. It did not address the distribution at all, as far as I know, and I ended up filing a return with the HSA excess contribution taxable income still there. The software did not seem to catch this scenario. Now I need to amend my return, I think, and to get clarification from Intuit's seeming error from Intuit, I need to pay an addition $100 or so dollars. Do I have a misunderstanding of how HSA works and TurboTax is correct? Or, does it seem like TurboTax software missed this and I have no recourse with Intuit without paying more?

TurboTax Premier Online

B

BillM223

"Do I have a misunderstanding of how HSA works and TurboTax is correct?"

Yes, you do not understand how HSAs work, and TurboTax is correct. HSA rules are remarkably arcane and obscure for such a simple thing, and I find that HR people and even HSA custodians don't always understand them.

The definition of "excess HSA contributions" is simply that you contributed more to your HSA than was allowed by your HDHP coverage. The amount that was distributed during the year has no bearing on this, nor does it matter how much you have in the HSA at any given point.

TurboTax calculates your annual HSA contribution limit based on whether you had Family or Self-only HDHP coverage, how many months you had coverage, whether you had coverage on December 1, 2019, whether or not you had conflicting coverage (like Medicare or a spouse's FSA), and whether or not you were 55+.

If you contributed more than that amount for 2020, then you had excess contributions.

To repeat, excess contributions are not affected in any way by distributions.

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P

parkjk2Author

Hi BillM223. Thank you so much for your reply! However, my google research indicates that qualified medical expenses paid for via HSA distributions count toward eliminating the excess contribution made by my employer to the HSA years ago. Otherwise, the same excess contribution would be taxable every single year. In fact, the IRS form takes this into account and has a line-item for the distribution that would result in the elimination of the tax liability (in my case). Unfortunately, the TuboTax software did not address any of these issues to take into account the elimination of the excess contribution via qualified medical expenses. I had the same tax liability for the HSA as I did last year, which seems incorrect.

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BillM223

Unfortunately, either what you read was wrong or you misunderstood it.

What you may be thinking of is that if you take a distribution for nonqualified medical expenses. you will (1) have to report that amount as income, (2) pay a 20% penalty on top of that, but an amount of the excess carried over from a previous year equal to the nonqualified distribution will be forgiven, well, discharged.

Note that you can withdraw excess contributions up until the due date of the return, so 2020 excess contributions can be withdrawn until May 17th (October 15th if you file an extension).

Once that date has passed, you can no longer withdraw this excess. So for an excess from 2019 or before, you must discharge it either by applying it against a future HSA contribution limit if you are eligible to contribute or by taking a distribution for non-qualified medical expenses.

Please show me the link to what you are reading, and I'll explain it to you.

P.S. "Otherwise, the same excess contribution would be taxable every single year. " - in fact, this is the way it works unless you either discharge the excess in a future year or make a nonqualified distribution...or your HSA runs out of money (then the excess is still carried over but the penalty is reduced to zero).

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