HSA Account Part 2

[Peachie]

Burke's having the same fit I have been having 2 hours. I, unlike Burke, have all of the info I need to do the 8889. I have never done one before and thought a newly soon to be RTRP would have no problem. Wrong. It's driving me nuts and I guess I don't understand after all. Will some of you helpful people (ONLY) try to point me in the right direction?

Here's my dilemma: Contributions for 2011 $4000. Distributions for 2011 $3625. Client tells me this is a family plan. She's 55+. I input the data asked for and lo and behold she owes additional tax of $725. Also, the SW is requirig me to look at form 5329 for excess contributions (which can be withdrawn by April 17 with no consequences).

I thought a family plan would allow distributions of up to $11,950. What am I missing? Why the excess and why an additional tax of $725-two different consequences. HELP!

Thanks in advance.

Peachie

[Lion]

You can get only so much info from the forms. Make sure you've marked it Family and not Single in your software. Then, ask you clients how much they spent of qualified medical; hopefully it'll be $3625 or more. Then make sure you have the number of months they were covered by a HDHP. After you do all that, look at it on the form to see if some line(s) doesn't make sense.

Family contributions can be $6150 + $1000. Distributions can be whatever was spent on medical. High Deductible Health Plan is required. Let us know how the form looks now.

[Gretel]

Burke's having the same fit I have been having 2 hours. I, unlike Burke, have all of the info I need to do the 8889. I have never done one before and thought a newly soon to be RTRP would have no problem. Wrong. It's driving me nuts and I guess I don't understand after all. Will some of you helpful people (ONLY) try to point me in the right direction?

Here's my dilemma: Contributions for 2011 $4000. Distributions for 2011 $3625. Client tells me this is a family plan. She's 55+. I input the data asked for and lo and behold she owes additional tax of $725. Also, the SW is requirig me to look at form 5329 for excess contributions (which can be withdrawn by April 17 with no consequences).

I thought a family plan would allow distributions of up to $11,950. What am I missing? Why the excess and why an additional tax of $725-two different consequences. HELP!

Ok, I'll try. When I did my first one I was as surprised as you how difficult it is to figure this out. Fortunately it was for my son so I could ask all kinds of dumb questions.

There should be no tax due in your case. Family plan allows for up to 7,150 in contributions. This is met. Distributions are allowed with no limit if used for medical expenses. This is met as well.

Your TS must think that this is a disqualified distribution. There must be a line or lines for input or a box to tell TS that this in not true. Which SW do you use?

[Peachie]

I covered those bases and

You can get only so much info from the forms. Make sure you've marked it Family and not Single in your software. Then, ask you clients how much they spent of qualified medical; hopefully it'll be $3625 or more. Then make sure you have the number of months they were covered by a HDHP. After you do all that, look at it on the form to see if some line(s) doesn't make sense.

Family contributions can be $6150 + $1000. Distributions can be whatever was spent on medical. High Deductible Health Plan is required. Let us know how the form looks now.

will come back in a bit and tell you what the 8889 shows. She used all of the money for medical that she contributed. I am going to look at the lines again because there are mucho questions.

Back in a bit.

Thank you.

[Peachie]

Hi Gretel,

Ok, I'll try. When I did my first one I was as surprised as you how difficult it is to figure this out. Fortunately it was for my son so I could ask all kinds of dumb questions.

There should be no tax due in your case. Family plan allows for up to 7,150 in contributions. This is met. Distributions are allowed with no limit if used for medical expenses. This is met as well.

Your TS must think that this is a disqualified distribution. There must be a line or lines for input or a box to tell TS that this in not true. Which SW do you use?

I use TRX Pro 1040.

I have got to be misinterpreting a line or lines. I am going back to the drawing board and come back and give you and Lion an update. So frustrating. Thanks.

Peachie

[Lion]

ProSystem fx

You have to tell it how much was SPENT on medical to, hopefully, zero out the distribution.

My first one last year was early in the year. It looked fine on screen and had no tax due. But the client got home and noticed that I'd put Family for a Single gal. (Software had a January glitch printing Family when screen showed Single; it was fixed the morning after I prepared that return!) But, I put an amount on an incorrect line also. It didn't change the bottom line, and client sat here while I prepared her return (one of the few that do that) so I didn't proofread as thoroughly as I should've. Was really embarrassed when she called to point out those two errors. Didn't hear from her until recently this season, so thought she might've left me. She'd heard from co-workers about how confusing the form is and troubles others had with it. She was fine this year, and I was extra careful.

Read each line to see if you think something should go there, or not go there. Then look in your software for a potential entry point. Change only one thing at a time, so you can see what each change does to the form.

[Peachie]

Got it Lion!

You have to tell it how much was SPENT on medical to, hopefully, zero out the distribution.

My first one last year was early in the year. It looked fine on screen and had no tax due. But the client got home and noticed that I'd put Family for a Single gal. (Software had a January glitch printing Family when screen showed Single; it was fixed the morning after I prepared that return!) But, I put an amount on an incorrect line also. It didn't change the bottom line, and client sat here while I prepared her return (one of the few that do that) so I didn't proofread as thoroughly as I should've. Was really embarrassed when she called to point out those two errors. Didn't hear from her until recently this season, so thought she might've left me. She'd heard from co-workers about how confusing the form is and troubles others had with it. She was fine this year, and I was extra careful.

Read each line to see if you think something should go there, or not go there. Then look in your software for a potential entry point. Change only one thing at a time, so you can see what each change does to the form.

You are right. I had that once and removed it for some reason. I went in and added and when I got here you were telling me what to do. GREAT!!

I did the line by line thing and could see the refund increase as you said and the $725 was gone. Now, here's the last part and what the review is telling me. It's not in red, so no audit alert, but I am concerned:

Review-US Form 8889. Add'l tax on HSA Excess Contribution-An additional tax on excess contributions to an HSA may apply because the amount on Form 8889 line 2 (current year HSA contribution) exceeds line 13(HSA deduction).

Suggestion to fix: Review form 8889 Part 1. If line 2, current year HSA contributions, exceeds line 13, HSA deduction, manually enter the difference on form 5329, Part v11, line 47. The difference is $850.

Line 7 deals with the age question you mentioned before, however, it says, "55 or older and married". She's not married so I put no months on that line because she's HOH. Would you like to know what I have on each line of the 8889 or do I need to read more?

Line 1-family
Line 2-$4000
Lines 3, 5, 6,and 8 show $7150
Lins 9 and 11=$4,000
Lines 12, 13=3150

14A and C=3625.
15=4000

Thanks.

Peachie

[Peachie]

Here's what I did

I removed the $4,000 from line 2. It removed the 5329 review. The $725 I had already taken care of, but it reduced the refund $467.

I am going to do a bit more work and come by tomorrow. I appreciate your help. Thanks.

Peachie

[Burke]

There is a problem with the wording on this form for the line inputs. I remember going around and around with it last year the first time I did one, and wound up emailing the IRS for help. And got it. Will pull that and post later. Also used my research question with NATP on this issue but it involved a more-than-2% shareholder in an S-Corp. Found old threads on this 9/15/10 and 1/24/11 (mine).

[Burke]

I read the OP and you don't say whether this is an employee in a C-Corp, or a more-than-2% shareholder in an S-Corp, or how the contributions are being made. Is the entire $4K being made by the employer? Is the TP making any contributions? If so, are they pre-tax (cafeteria plan) or after-tax? How much are they? All of these factors influence what goes on this form and where.

Part I is for the contributions. Part II is for the distributions. The info from the HSA-1099 will flow to 14a or you can input manually. Line 15 is for the total eligible medical expenses. In the case you describe above, these two figures should be the same, and one will cancel out the other, resulting in no tax or penalties on that part.

[Peachie]

Burke, this is

I read the OP and you don't say whether this is an employee in a C-Corp, or a more-than-2% shareholder in an S-Corp, or how the contributions are being made. Is the entire $4K being made by the employer? Is the TP making any contributions? If so, are they pre-tax (cafeteria plan) or after-tax? How much are they? All of these factors influence what goes on this form and where.

Part I is for the contributions. Part II is for the distributions. The info from the HSA-1099 will flow to 14a or you can input manually. Line 15 is for the total eligible medical expenses. In the case you describe above, these two figures should be the same, and one will cancel out the other, resulting in no tax or penalties on that part.

exactly what happened. I don't know how to BOLD in TTB but your last paragraph is what I did last night and it came out as you described. This is a regular employee and says the deducts were done weekly from her pay check. It seems the way I did it took care of all of the issues I began with. The 8889 is one heck of a form and you do have to really read and understand the lines and when you think you have it-you have to adjust, adjust, adjust :-). I am satisfied that it's correct now. I'll let you know for sure if I hear anything within the next three years.

Thanks everybody.

Peachie

[Burke]

Whoever designed this form should be taken out and shot. It needs revision BAD. I think I finally figured out what goes where. And the instructions do not always help. You kind of have to know the answer, and work backwards from that to make it work.

[Lion]

Exactly

If you know they had medical expense and shouldn't pay tax on a distribution or you know they contributed from their own check book vs. via payroll deduction and should get an adjustment to income, you know what the bottom line should be.

One line that tripped me up first time was labelled something like qualified distribution, so I put her HSA distribution there. That line actually means a distribution from something else, like an Archer, that contributed to the HSA! Luckily, that line didn't change the bottom line of the form, but I had a number on a wrong line on that first one I prepared last year.

[Burke]

The biggest problem is Line 7. "If you were age 55 or older at the end of 2011..." [STOP.]
married [ignore the comma] and you or your spouse had family coverage...[STOP.] Those two items are mutually exclusive. So if you are single and over 55, your $1K extra allowance goes on that line.

[Peachie]

Burke, my program

The biggest problem is Line 7. "If you were age 55 or older at the end of 2011..." [STOP.]
married [ignore the comma] and you or your spouse had family coverage...[STOP.] Those two items are mutually exclusive. So if you are single and over 55, your $1K extra allowance goes on that line.

ignores line 7. When I enter the additional $1K on that line, it doesn't even show up. It shows $7150 on all of the lines through 8. I have nothing to put on line 25 of the 1040. Have I got to do this again? Please say it's not so.

I have $4k on lines 9 and 11 and $3150 on line 12. I have nothing on lines 2 and 13.

Peachie