HSA Excess Contribution/Earning Reporting over multiple Tax Years - 1099-SA

Forum|Forum|1 year ago
March 14, 2025
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I made excess contributions to my HSA account during 2023 tax year. I reported the reversal of the excess contribution and earnings on my 2023 tax filings and executed the appropriate reversing entry(s) with my(our) HSA custodian prior to the Apr 15, 2024 (2023 tax filing) deadline.

In the collection of tax forms for execution of the 2024 Tax year, I have received (3) separate 2024 1099-SAs. 1 representing Gross Distributions for medical related payments made during tax year 2024(this one is fine). 2 additional 1099-SA (mine and spouse's) Gross Distributions for reversal of contributions and earning made and reported under the 2023 tax year. TurboTax doesn't seem to provide the ability to report the 2024 1099-SAs as "Prior year Excess Contributions & Earnings, reported on Prior Year (2023) tax filings.

How do you recommend we address these two additional 2024 1099-SAs?

Mike9241

you may have misreported in 2023.

Earnings on excess HSA contributions are taxed in the year they are withdrawn.

Jerry LantzyAuthor

Excess contribution (made with post tax dollars) and related earnings were both reversed in 2024 and reported accordingly for tax year 2023. Now the custodian of the HSA has issued a 2024 1099-SA for the distribution. Unfortunately, if I enter this form in TurboTax the software doesn’t enable me to qualify it as a reversal distribution made for a prior tax year reversal of an excess contribution. TurboTax is applying the income and excise tax penalty on an unqualified distribution with earnings. The tax liability is actually reflected correctly if the 1099-SA are omitted from the TurboTax calculation. I’m not entirely comfortable with this solution.

BillM223

It sounds like your two 1099-SAs were created with Distribution code of "1" in box 3, i.e., a normal distribution.

If so, then either you didn't tell the HSA custodian that this was a "withdrawal of excess contributions", or the HSA custodian made a mistake.

Whichever it was, there is no good fix now, because HSA custodians normally refuse to correct even their own errors from the previous year.

The "solution" is to enter the 1099-SAs for the withdrawal of excess contributions with distribution code of "2" in box 3. When you do this, the distribution amount in box 1 is ignored (good) and only the earnings in box 2 are added to income (as they should be).

NOTE: entering a form with different information than the copy that was sent to the IRS by the HSA custodian may trigger a letter to you from the IRS asking why. You will have to be prepared to explain that the HSA custodian made a mistake and that you had to change to data on the form to correct it. If you have any evidence of this mistake, like a copy of the withdrawal request or an email from the HSA custodian, that would be a very good thing to put in your tax archive in case anyone asks.

NOTE: 1099-SAs for withdrawal of excess contributions are normally entered in the tax return of the year following the original contributions. This is because most people don't realize that they have an excess until they do their tax return after the end of the year. Besides, the earnings are generated both in the original tax year and the year following, so it would not make sense to report the earnings before you actually earned them.

So it is correct that the 1099-SAs reporting the withdrawals of excess contributions in 2023 would go into your 2024 return.

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