37956

Here is the full diagnostic:

Ref # 37956

The spouse is subject to additional tax on excess contributions to health savings account. The excess contributions are currently reported on Form 5329 page 2. The excess contribution tax can be eliminated if the spouse withdraws the excess contributions by the due date of the return (including extensions), withdraws income earned on the withdrawn excess contributions, and includes the earnings on the withdrawn contributions in gross income for the year in which the withdrawn contributions and earnings are received. If excess contributions are withdrawn, the additional tax can be eliminated by entering the excess amount withdrawn in “ Excess contributions withdrawn by due date of return” in the Excess Contributions input section of the Health Savings Account input screen, or by reducing the contribution amount entered in  “HAS contributions that you made” in the Contributions and Deductions input section of the Health Savings Account input screen.

How can I fix this?

One thing to check in the software is whether the type of coverage is coded correctly as "Individual" or "Family" because the limit on contributions is higher for family coverage. That's something the client needs to tell you - if the HSA contributions were made via an employer, they would not allow a mismatch between the type of coverage and the contributions, but if the HSA contributions are being made personally, then you need the client to verify the type of insurance coverage. The HSA custodian wouldn't know the type of coverage.

If there really was an overcontribution, you should discuss the options with your client - to remove the excess contribution tax from the return, the client will need to withdraw the excess contribution from the account by 4/15/2025. It's really the client who needs to make the choice as to how to proceed. 

When this happens to a client of mine, I wait to finalize the return until they provide a copy of the withdrawal paperwork from the HSA custodian, to be sure it gets done before the return is filed.

Ok Karen that helps a lot. Thanks

KAREN ON MY HEALTH SAVINGS ACCOUNT (8889)

TYPE OF COVERAGE - FAMILY (FOR TAXPAYER AND SPOUSE)

CONTRIBUTIONS & DEDUCTIONS

EMPLOYER CONTRIBUTIONS TO YOUR HSA - SPOUSE $4,420 (FROM THE w-2)

I JUST DONT SEE HOW IT IS CALCULATING EXCESS CONTRIBUTIONS

I AM SO LOST

In the HSA input screen, 32.1, is the Type of coverage 2=family in the spouse column and not the Taxpayer column? 

And the W-2 is input with the spouse box checked?

Ok let me try that and I will keep you informed. Thanks

Karen type of coverage 2=family is in both the taxpayers and spouse column.

Yes the W-2 for the spouse is checked.

What is the amount of the overcontribution Lacerte is calculating?

Is it possible you entered the HSA contributions twice? Once on the W-2 input and a second time on the HSA input page? 

That is the thing there is no amount anywhere for over contributions. That was the first thing I checked to see if a duplicate entry had been made anywhere. The HSA is only entered on the W-2 input. I really dont know what to do because there was no over contributions for HSA so I am not sure where Lacerte is coming up with that information.

If there is no tax on p2 of Form 5329, then why spend so much time during the height of tax season focused on understanding why the diagnostic it being triggered? I would just make a note in the file that the diagnostic doesn't appear to be correct and move on.