Another IRS form 8889 Excess HSA contribution question

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Topic Author
panhead
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Another IRS form 8889 Excess HSA contribution question

Post by panhead »

I overcontributed to my HSA in 2022 due to an incentive contribution from my insurance company. The overcontribution amount is $299. I discovered this in early 2023 and I sent in the “removal of excess contribution” form to my HSA custodian (Optum). This was done this month (February) so well before my 2022 tax return due date.

Now I’m trying to figure out how this gets put on my tax return. I’m using TaxAct. I can see the excess contribution making its way to form 1040 and being recorded as “other income” which I believe is correct as it wasn’t reflected on box 1 on my w2.

Now, the $299 distribution: This was technically distributed in 2023, but before my 2022 tax return due date. Do I recognize this on my 2022 return, or my 2023 return? I don’t expect that Optum will issue me another 1099-sa to reflect this distribution for 2022, but I’d imagine it shows up on a 1099-sa for 2023.
So, assuming I will not get another 1099-sa to reflect this withdrawal for 2022, do I simply add the excess contribution withdrawal amounts to lines 14a, and 14b of form 8889 for the current (2022) tax year?
Or…
Does this get reconciled in 2023 with the 1099-sa I receive for that tax year?

I couldn't find any clear interview question about removing this excess contribution, only a question about removing after-tax contributions, which this is not.

I've searched this forum, read form instructions, etc, and I can't seem to find a concise answer to this issue...
secondcor521
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Re: Another IRS form 8889 Excess HSA contribution question

Post by secondcor521 »

I think you need to distinguish between a return of excess contribution and a distribution.

Given that you made the return of excess contribution prior to the filing deadline, you'll recognize it on your 2022 return as you are doing. The $299 is included on Form 8889 already via line 9, which probably got there via the code "W" in box 12 of your W-2 from your employer. And since it was not included in your box 1 wages, TaxAct is doing the right thing by including it in Other Income on your 2022 return.

Optum should not report the $299 distribution to you on your 2023 1099-SA because it is a return of excess contribution, not a distribution. Do not add it to lines 14A or 14B of this year's 8889 because it is not a distribution.

The relevant IRS link is https://www.irs.gov/instructions/i8889# ... 71yd0e1430

(They should have also distributed to you any associated earnings, but maybe you just had it in cash.)
Topic Author
panhead
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Re: Another IRS form 8889 Excess HSA contribution question

Post by panhead »

secondcor521 wrote: Tue Feb 07, 2023 9:50 am I think you need to distinguish between a return of excess contribution and a distribution.

Given that you made the return of excess contribution prior to the filing deadline, you'll recognize it on your 2022 return as you are doing. The $299 is included on Form 8889 already via line 9, which probably got there via the code "W" in box 12 of your W-2 from your employer. And since it was not included in your box 1 wages, TaxAct is doing the right thing by including it in Other Income on your 2022 return.

Optum should not report the $299 distribution to you on your 2023 1099-SA because it is a return of excess contribution, not a distribution. Do not add it to lines 14A or 14B of this year's 8889 because it is not a distribution.

The relevant IRS link is https://www.irs.gov/instructions/i8889# ... 71yd0e1430

(They should have also distributed to you any associated earnings, but maybe you just had it in cash.)
Thank you for the reply.
Yes, there were virtually no associated earnings as it was in cash and the interest rate is like 0.01%.
I agree that taxact is doing the right thing by adding the 299 to my income, The part I don't understand is how does the IRS know that I removed the excess? If I were to leave it in there, I would need to pay the 6% excise tax. Form 8889 instructions point to lines 14a/b to record excess contributions and their removal, but without a supporting 1099-sa for tax year 2022, adding the 299 here seems questionable at best.
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MP123
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Re: Another IRS form 8889 Excess HSA contribution question

Post by MP123 »

panhead wrote: Tue Feb 07, 2023 12:57 pm I agree that taxact is doing the right thing by adding the 299 to my income, The part I don't understand is how does the IRS know that I removed the excess? If I were to leave it in there, I would need to pay the 6% excise tax. Form 8889 instructions point to lines 14a/b to record excess contributions and their removal, but without a supporting 1099-sa for tax year 2022, adding the 299 here seems questionable at best.
You'll get a 1099-SA for 2023 next year that will have a distribution code of "2" to reflect the distribution of the excess. You may get also get another one with a code "1" if you have a normal distribution this year.

It takes a while for the IRS to grind through matching 1099s which don't always line up with returns, which is why letters usually go out a year or two later (if at all).
Topic Author
panhead
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Re: Another IRS form 8889 Excess HSA contribution question

Post by panhead »

MP123 wrote: Tue Feb 07, 2023 1:11 pm
You'll get a 1099-SA for 2023 next year that will have a distribution code of "2" to reflect the distribution of the excess. You may get also get another one with a code "1" if you have a normal distribution this year.

It takes a while for the IRS to grind through matching 1099s which don't always line up with returns, which is why letters usually go out a year or two later (if at all).
Thanks, this is what I was looking for. So, since the excess contribution was withdrawn in 2023, i will get a 1099-sa for tax year 2023 showing the removal of this excess contribution. The excess contribution distribution amoun t(299 in this case), plus any additional (normal, code 1) distributions will populate 14a/b on 8889 for tax year 2023. So apparently there is nothing left to do here for tax year 2022, the reporting of removing the excess contribution happens in tax year 2023.

Thanks!

(edited for clarity)
Last edited by panhead on Tue Feb 07, 2023 1:35 pm, edited 1 time in total.
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MP123
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Re: Another IRS form 8889 Excess HSA contribution question

Post by MP123 »

panhead wrote: Tue Feb 07, 2023 1:20 pm
MP123 wrote: Tue Feb 07, 2023 1:11 pm
You'll get a 1099-SA for 2023 next year that will have a distribution code of "2" to reflect the distribution of the excess. You may get also get another one with a code "1" if you have a normal distribution this year.

It takes a while for the IRS to grind through matching 1099s which don't always line up with returns, which is why letters usually go out a year or two later (if at all).
Thanks, this is what I was looking for. So, since the excess contribution was withdrawn in 2023, i will get a 1099-sa for tax year 2023 showing this excess contribution. The excess contribution, plus any additional (normal, code 1) distributions will populate 14a/b on 8889 for tax year 2023. So apparently there is nothing left to do here for tax year 2022, the reporting of removing the excess contribution happens in tax year 2023.

Thanks!
No, you should still report the removal of the excess for 2022. It will just be reflected on the 1099 for 2023.

This same situation occurs with retirement plan contributions made after the end of the year for the previous year. You report them on your 1040 for the year you are taking them, not the year that they are actually made. So the 1099/5498 doesn't always line up with a year's 1040, and that's ok in this case.
Topic Author
panhead
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Re: Another IRS form 8889 Excess HSA contribution question

Post by panhead »

MP123 wrote: Tue Feb 07, 2023 1:35 pm
panhead wrote: Tue Feb 07, 2023 1:20 pm
MP123 wrote: Tue Feb 07, 2023 1:11 pm
You'll get a 1099-SA for 2023 next year that will have a distribution code of "2" to reflect the distribution of the excess. You may get also get another one with a code "1" if you have a normal distribution this year.

It takes a while for the IRS to grind through matching 1099s which don't always line up with returns, which is why letters usually go out a year or two later (if at all).
Thanks, this is what I was looking for. So, since the excess contribution was withdrawn in 2023, i will get a 1099-sa for tax year 2023 showing this excess contribution. The excess contribution, plus any additional (normal, code 1) distributions will populate 14a/b on 8889 for tax year 2023. So apparently there is nothing left to do here for tax year 2022, the reporting of removing the excess contribution happens in tax year 2023.

Thanks!
No, you should still report the removal of the excess for 2022. It will just be reflected on the 1099 for 2023.

This same situation occurs with retirement plan contributions made after the end of the year for the previous year. You report them on your 1040 for the year you are taking them, not the year that they are actually made. So the 1099/5498 doesn't always line up with a year's 1040, and that's ok in this case.
OK, so they get reported where I thought on 8889 lines 14a/b?

If so, I need to either create a fake 1099-sa in TaxAct to show this distribution, or override the values on the 8889, which will prevent me from filing electronically.

I haven't found any way around that yet, there doesn't seem to be anything for me to tell TaxAct that I removed the excess contributions, show this on the appropriate lines of 8889, even though I haven't received, and won't receive, a 1099-sa to reflect this until eoy 2023, beginning of 2024.

Any thoughts? Sounds like it might be a TaxAct question at this point.
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MP123
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Re: Another IRS form 8889 Excess HSA contribution question

Post by MP123 »

panhead wrote: Tue Feb 07, 2023 1:40 pm I haven't found any way around that yet, there doesn't seem to be anything for me to tell TaxAct that I removed the excess contributions, show this on the appropriate lines of 8889, even though I haven't received, and won't receive, a 1099-sa to reflect this until eoy 2023, beginning of 2024.

Any thoughts? Sounds like it might be a TaxAct question at this point.
I don't use TaxAct, so I'm not sure. Does TaxAct show that you have an excess contribution? And puts it on Form 5329 so you pay the 6% tax on it? There must be some way to tell it that you've removed the excess instead.
Topic Author
panhead
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Re: Another IRS form 8889 Excess HSA contribution question

Post by panhead »

MP123 wrote: Tue Feb 07, 2023 2:18 pm
panhead wrote: Tue Feb 07, 2023 1:40 pm I haven't found any way around that yet, there doesn't seem to be anything for me to tell TaxAct that I removed the excess contributions, show this on the appropriate lines of 8889, even though I haven't received, and won't receive, a 1099-sa to reflect this until eoy 2023, beginning of 2024.

Any thoughts? Sounds like it might be a TaxAct question at this point.
I don't use TaxAct, so I'm not sure. Does TaxAct show that you have an excess contribution? And puts it on Form 5329 so you pay the 6% tax on it? There must be some way to tell it that you've removed the excess instead.
Good questions, I've just been looking at this.
So, TaxAct does tell me that there was an excess contribution. Since I don't have a 1099sa for the distribution of the excess contribution, its not reflected on lines 14a/b on 8889, which it seems clear from the instructions that I should put it there.

Also interesting, TaxAct does not populate line 47 of form 5329 with the excess contribution amount. This would be the correct behavior if I had told TaxAct that I had withdrawn the excess contribution, but it gives me no way to tell it this without entering a bogus 1099-sa to that affect.
AnEngineer
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Re: Another IRS form 8889 Excess HSA contribution question

Post by AnEngineer »

panhead wrote: Tue Feb 07, 2023 12:57 pm Yes, there were virtually no associated earnings as it was in cash and the interest rate is like 0.01%.
Was the entire account invested like that? The calculation for associated earnings does not track particular dollars, just the total account change scaled by the fraction of the account that the excess is.
Topic Author
panhead
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Re: Another IRS form 8889 Excess HSA contribution question

Post by panhead »

AnEngineer wrote: Tue Feb 07, 2023 2:53 pm
panhead wrote: Tue Feb 07, 2023 12:57 pm Yes, there were virtually no associated earnings as it was in cash and the interest rate is like 0.01%.
Was the entire account invested like that? The calculation for associated earnings does not track particular dollars, just the total account change scaled by the fraction of the account that the excess is.
Interesting question!
The entire account for this HSA is invested all in cash. I periodically move money to my Fidelity HSA. Hopefully HSAs aren't considered like IRAs where they are all considered one big HSA. I hadn't considered that possibility.
Topic Author
panhead
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Re: Another IRS form 8889 Excess HSA contribution question

Post by panhead »

I think I understand how this is handled at this point.

For 2022, the excess contribution needs to be shown on 8889. Doing this correctly will cause the $299 of excess contribution to flow to 1040 schedule 1 and then to 1040 line 8, "Other Income" as this was previously untaxed $$.

The $299 should NOT be included on 5329 line 47, as it has been removed before the due date of the tax return. Putting it here would assume that I am not going to remove the $299 by the due date of the return.

The $299 should not be included on lines 14a/b of 8889 as I did not, and will not receive a 1099-sa for the distribution of excess contributions in 2022, since it was distributed in 2023.

Since the distribution occurred in 2023, I will get the 1099-sa for the 2023 tax year showing the return of excess contribution. So, on the 2023 return, the $299 will show up on lines 14a/14b. This will show the removal of excess contributions that occurred in 2022.

Hopefully this is correct, as its what I'm going to do unless someone has a better understanding than I do. I'm not worried about the tax on the $299, I'm more worried about doing something that will attract attention to the return or create a problem I'll have to deal with next year or years to come.

Edited to add:

TaxAct is doing what I would want it to do since I removed the excess contributions. If I had not removed them and wanted to leave it in there, it appears I would manually need to enter the excess on 5329. I'm surprised there's no question or mechanism to ask you what you plan to do with the excess contributions, but perhaps that will come in a future update.
Topic Author
panhead
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Re: Another IRS form 8889 Excess HSA contribution question

Post by panhead »

Just updating this thread to shine a light on the efficiency of Optum. I mailed in the excess contribution form, nothing happened. I chatted with an agent and emailed her the form, nothing happened. Almost a month has gone by now so I called today and emailed the form yet again and got a reference number. Maybe the third time will be a charm.

This really shouldn't be this difficult.
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panhead
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Re: Another IRS form 8889 Excess HSA contribution question

Post by panhead »

OK, third time was a charm, i see the removal of the funds in the transaction tab. At least that's done!
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