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Any tax experts? HSA over contribution.

C

cac@PSU

Junior
Oct 15, 2021
266
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Tax Act is not the best online program, try running tax return with one of the other services
 
P

PSUSignore

All-Conference
May 29, 2001
1,469
2,340
113
Not an expert so I can't give tax advice, but per a quick Google search I found the below. I know for IRA excess contributions you have to pay an IRS penalty, plus taxes on the associated earnings for what you've withdrawn. It looks like the HSA treatment is similar. I'd check more sources though just to make sure.

Removing Excess Contributions​

For most people, the removal method will be the preferred option. It is relatively simple to do, and it takes care of the problem once and for all. It allows you to avoid paying a penalty as long as three criteria are met. You must:

  1. Withdraw the excess contributions no later than the due date of your tax return for the year the contributions were made. These withdrawals will be considered taxable income.
  2. Take out any income earned on the withdrawn contributions during the year they were made. This will also be taxable income.
  3. Include the earnings in “Other Income” on the tax return for the year you withdraw the contributions and earnings.
You can withdraw some or all of the excess contributions, but you will have to pay the excise tax on any that you leave in the account.

When removing excess contributions from your account, you must inform your HSA trustee. If you don’t, they won’t know to do it. The excess funds that were withdrawn will be listed on Form 1099-SA as a distribution, in Box 1, for the tax year in which the distribution was taken. Earnings on excess contributions withdrawn will be in Box 2 and included in Box 1. Form 5498-SA will report the market value of your HSA at the end of the calendar year, the total contributions made within the calendar year, and the total contributions for the tax year through the tax filing deadline, typically April 15. The account owner should retain Form 5498-SA for record keeping purposes, but is not required to submit it to the IRS.
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