HSA - DISTRIBUTION AND DEDUCTION

[moonpetty58]

CLIENT HAS HSA ACCOUNT  

T/P RECEIVED 1099-SA WITH GROSS DISTRUBUTION OF 2520.00

T/P W-2 SHOWS EMPLOYER CONTRIBUTED 2700.00

T/P OVER 63 YEARS OLD.  PROBLEM:

FORM 8889 LINE 2 = HSA CONTRIBUTION BY EMPLOYEE IS $00.00

SMART WORKSHEET FOR LINE 3 INDICATES SELF ONLY AT 3650.00 PER MONTH FOR 12 MONTHS.

LINE 3 SHOWNS 4650 - WHY NOT THE 3650?   

I READ PUB 969 ON HSA ACCOUTS, BUT UNABLE TO UNDERSAND THE DIFFERENCE IN DOLLAR AMOUNT.  CAN YOU TELL ME WHY?   

I KNOW WHAT TO DO WITH THE EMPLOYER'S CONTRIBUTION OF 2700.00 AND THE T/P DISTRIBUTION OF 2519.00 USED FOR MEDICAL EXPENSES. 

[rbynaker]

Looks like you stopped reading too soon.  From the bottom of Pub 969 page 6:

Additional contribution. If you are an eligible individual
who is age 55 or older at the end of your tax year, your
contribution limit is increased by $1,000.

[moonpetty58]

Thank you for your response.

Why is t/p being taxed on funds $1,000.00 or more that they could have contributed but didn't, confused.    Tt/p said that he did not contribute anything to the plan "why should I be taxed?" Could not explain.  Please assist.   I may be missing something in my reading the pub.   This is definitely a learning setting for me.   T/p enrolled in Medicare December 2022.

[TaxGuyBill]

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@moonpetty58 wrote:

Why is t/p being taxed on funds $1,000.00 or more

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Are you saying $1000 of taxable income is showing up on Schedule 1?

[dkh]

Is the contribution being taxed or the distribution ?   

You checked the box at top of 8889 Line 1 and Smart Worksheet for Line 3  for Self or Family (whichever applies) ?

For distribution:  you checked the box for Full amount used for qualified medical expenses or entered the $ for partial ?

[qbteachmt · Accepted solution]

"T/p enrolled in Medicare December 2022."

"T/P OVER 63 YEARS OLD."

Medicare is at 65, and then you no longer qualify to contribute to an HSA (my State offers Medical Savings Account provisions, though). That means 11/12 of the allowable limit for the year. More than this would be excess and needs to be corrected by distribution. And the employer should have stopped deducting.

The employer and employee amounts on W2 are considered combined as from the employee.

Did you enter the data from the W2, only?

You have a variety of issues, here.

[moonpetty58]

Thank you.   

[moonpetty58]

No my error.  I thought that the t/p was being taxed on funds that they did not contribute.  My mistake.  Thank you!

[moonpetty58]

Thank you.  I understand clearer now.

[qbteachmt]

"I thought that the t/p was being taxed on funds that they did not contribute."

Yes, since employer contributions through work are considered the same as if the employee put them in, and your taxpayer has one disallowed month, you will need to do the math for how much is allowed in 2022 (I think that comes to $4,262 for your taxpayer? You need to document the math, though). And they are taxed on excess, the same as into an IRA is taxed until a corrective distribution is done. Your person might be fine, but it's time to stop contributing. They still have an account and can spend from it and invest it. Just no further contributions to it by anyone.