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Health Care

How do health care reform and taxes connect? The Affordable Care Act is single largest change to the tax code in two decades. Find help navigating the complexities of the new health care legislation, Medicare, Medicaid and other medical deductions.

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Trusted Pioneer
Posts: 5
Registered: ‎03-20-2017
Accepted Solution

Excess contribution...which year?

I had excess contribution of 300 in 2015.  I took it out on 4/7/2016 so before the tax deadline for tax year 2015.  My hsa provider sent me a 1099-SA or 2016 that had the 300 amount on it.   So the first question is that correct? 

On the 2015 return I indicated that amount on f889 14b.

On the 2016 return the software puts the 300 as other income on 1040 ln21 but also it is on the f8889 on part II ln16 and 17a as an additional 20% tax on it.  I don't think this is correct.  Thoughts?

Tax Pro
Posts: 5,615
Registered: ‎02-23-2016

Re: Excess contribution...which year?

Hi sep23,

 

Welcome to the H&R Block community.

 

This is actually correct.  Your excess contribution is taxable for the federal income tax, so it should be on Line 21 of the 1040 for 2016 since the withdrawl occurred in 2016.  The penalty cannot be waived on the tax return, so it must be paid initially, however there is one way to get a waiver of the 20% penalty.

 

What you'll want to do is complete Form 5329 (Additional Taxes on Qualified Plans) which you must do anyway, but attach a statement explaining that you withdrew the excess contribution before the tax deadline to your Form 5329.  Then, mail your tax return along with the Form 5329 and your statement to the IRS.  It will take a little while to process, but you'll receive your waiver within a few months.

 

If you have any other questions I'll be glad to help.

 

Louis,

Senior Tax Advisor (Tampa, FL)

Trusted Pioneer
Posts: 5
Registered: ‎03-20-2017

Re: Excess contribution...which year?

Hi Louis. Thanks for your reply. 

I chatted with a HR block tax support rep and she told me to add it to 1040 ln21 other income as HSA in 2015.  She also said that the 2016 1099-sa that my HSA bank supplied should be left off of the 2016 return as the IRA would make the connection to the 2015 return.  The 20% penalty on the software comes about due to combining this 1099-sa with distribution code of 2 and another with distribution code of 1 but only claiming medical expense on the latter 1099.  In the software for 2016 the interview box "amount of excess hsa contibutions withdrawn" is grayed out and inaccessible probably due to the fact that I claimed it in 2015 and it carries it forward. I guess that makes sense.

Reading the instr for 2015 f5329 it states that I can avoid the tax if the excess contrib was removed before the tax deadline for the 2015 return which I did.   I see this info in the instr under "Part VII—Additional Tax on Excess Contributions to Health Savings Accounts (HSAs)".  I see this info in f8889 and pub 969. 

What I don't get is why doesnt the software make me fill out the f5329 if I needed it.  I looks like I need to file it but I shouldn't have to pay extra tax or penalties on the excess contribution.

 

Sal

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Trusted Pioneer
Posts: 5
Registered: ‎03-20-2017

Re: Excess contribution...which year?

Ok so chatted with anther HRBlock tax support rep and this is the result.

2015 return

-Indicate the excess contrib.  The software will automatically determine it since the contribution from the W-2 will be in excess of the max which is stored in the program. 

2016 return

-1099-sa with distrib code 2 for 2016 goes on 2016 return.  That amount of exces goes onto 1040 ln21 as "HSA".  This will include it in income as if it was in the normal part of the pay during the year.

-Excess contribution box grayed out automatically.  Again, the software will automatically determine it since the contribution from the W-2 will be in excess of the max which is stored in the program.  No need to fill this in.

-f5329 not needed. Software will fill this in automatically if 1099-r received.  Again there should be no extra tax since excess contribution was removed according to the rules; before the tax deadline/filing of the return.

 

Hope this helps someone else.