How do I properly deduct HSA contributions?

Question

I have an HSA for which I made prior year contributions last calendar year (contributions for 2016 made in 2017 before the filing deadline), current year contributions (contributions for 2017 made in 2017) and more prior year contributions made this year (contributions for 2017 made in 2018).

Let's say I made a $2000 contribution in 2017 for 2016 and another $2000 contribution for 2017 in 2017, then a $1000 contribution in 2018 for 2017. My total contributions for 2017 are $3000, which is less than the maximum contribution, but my 5498-SA would show $4000 in Box 2 because the IRS instructions say to include all contributions made during the 2017 calendar year.

Does this mean that I need to withdraw $600 from my HSA before the filing deadline to avoid the excess contribution tax, bringing me to $3400 (the individual maximum for 2017)?

What can I deduct on my 2017 taxes, $4000 or $3000?

I'm a bit confused as to whether Box 2 tracks whether or not I made excess contributions for a year or just what I can deduct for that year.

Follow up questions:

Does this mean that, in the future, I can contribute $3400 (pretending the maximum remains $3400) in January for the prior year and $3400 for the current year, then claim a $6800 deduction for the current year taxes?

Would this then mean that in the following year, I could only claim up to $3400 in deductions for that particular year because I can't claim a prior year contribution as a deduction?

Answer 1

I run into this issue every year that I make prior year HSA contributions. My credit union submits Form 5498-SA using the amount I contributed in the calendar year, ignoring the prior year designations, and they assure me that this is the correct way to fill out this form.

The short answer is that Form 5498-SA does not accurately reflect the amounts that you have contributed by tax year. Don’t worry about it. Just claim the deduction the way you have designated it. In your example, your 2017 HSA deduction is $3000, and there is no need to make any excess contribution withdrawals.

To be clear, it is important that you designate your prior year contributions as such to your bank when you make them. However, you won’t see these designations on Form 5498-SA.