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01-06-2018 06:23 PM
Just found out that my wife is ineligible for the HSA she has had for the last three years. We file jointly. How do we correct our tax returns going back three years?
Solved! Go to Solution.
01-06-2018 06:38 PM
Welcome to the H&R Block community.
You'll need to file Form 1040X to amend your tax return. First make the changes to the original return and then fill out the 1040X.
Your contributions to the HSA must be reported as income for the year in which they were distributed back to you.
Also, if contributions for any year were left in the account after April 15th then you'll need to fill out Form 5329 to calculate the 6% tax penalty on excess contributions.
Mail only the 1040X and any forms that have been added to your tax return or changed in any way to the IRS. So you should mail the 1040X, Form 8889, and Form 5329 for each year that you correct or add them for.
Note that if your wife had a high deductible health plan for these years and if she was not eligible for another type of health insurance then she qualifies to contribute to an HSA. You can have an HSA account after you are no longer qualified to make contributions, and you can still use the funds that were already in the account at the time you became ineligible tax-free, you just can't contribute to any further funds to the account.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)
01-06-2018 07:09 PM
Excellent. I appreciate both the quick reply and the clear instructions. Thank you!
My understanding is that:
In year-1 (2015), I should recompute my 2015 taxes with the total HSA contributions added to income and pay the tax on that plus a 6% penalty on the contributions.
In year-2 (2016), I would do the same, but also pay an additional penalty on any HSA funds carried over from year-1 (in other words, 6% of the difference between year-1 contributions and amount withdrawn for medical expenses in year-1).
Similarly, in year-3 (2017), I should move all 2017 contributions to income, pay that tax, and pay the penalty on anything carried over from 2016?
01-07-2018 10:06 AM
For 2015 you'll calculate the 6% penalty on anything that was not withdrawn by April 15th, 2016. Add into taxable income (report as a taxable distribution on Form 8889) all amounts that were actually distributed by April 18th, 2016. All amounts withdrawn, whether for medical expenses or not, are taxable income because you were not eligible to contribute.
For 2016 the 6% penalty should be calculated on everything remaining in the account after April 18th, 2017 (the remaining amount from the first year and contributions from the second year). All amounts that were distributed before that date for any reason are taxed as ordinary income (report as a taxable distribution on Form 8889).
For 2017, get everything out of the account by April 17th, 2018 so that you do not have to worry about then penalty again. The distribution will be taxable for the federal income tax. You won't have to pay the penalty on anything for your upcoming 2017 tax return if you get it all withdrawn.
Taxable distributions from Form 8889 are carried to Line 21 of Form 1040.
03-18-2018 07:01 PM
I have my employer High Deductible insurance and I opened there HSA in 2017. In July of 2017 I found out that because I have Plan A Medicare (Hospital), my HSA was Ineligible. I paid back any deductions for Medical use to the HSA and the balance was send back to my Payroll. My problem is that the amount shows up on my W2 in box 12 with code W. I do not see the full amount deducted from my Gross income when I look at box 1. Do I fill out the 1040X using my H&R Block Software?
03-19-2018 11:35 PM
Unless you've already filed your return, you will not file Form 1040X. 1040X is used for amending a return that you have already filed.
If the original HSA contributions were made by you (employee contributions) and then undone-- sent back to your employer by the HSA custodian-- they should show up in Box 1 of your W-2 because that will be taxable income to you since the money didn't end up in the HSA. Your employer should also have given you that money either in your paycheck or as a separate payment.
If it was a contribution by your employer that the employer received back, then it doesn't seem like it should be added to your W-2 income unless your employer paid it to you. It also doesn't seem right that the amount should be reported in Box 12 with code W if it was undone, since that's the code for reporting HSA contributions. I'd check with the payroll department to find out what's going on. There may be a reason that the amount is being reported in Box 12. Maybe the reporting requirements for the HSA custodian mean that you'll be getting a form of some sort from them that will offset the Box 12 info.