Question

How to handle HSA excess contribution for tax year 2024 when the withdrew for the excess occurred in January 2025

Forum|Forum|1 year ago
March 17, 2025
1 reply
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Hello,

I over contributed my HSA contribution for tax year 2024. I submitted the Excess Contribution Removal form in January 2025. The custodian has removed the overage but the 1099-SA will be reported on my 2025 return. So should I report this when I do my taxes for tax year 2025? If not then how do I enter this in Turbo Tax when there is no 1099-SA form for tax year 2024?

Thank you in advance.

D

DavidD66

It depends on whether the contribution was made through payroll deduction or if you made the contribution with after-tax funds. If it was done pre-tax through payroll, your employer should issue you a corrected Form W-2 with the excess contribution included in your income. If you don't get a corrected Form W-2 you should report the excess contribution as "other income" on your 2024 tax return. If you made the contribution with after tax funds and there were no earnings associated with it, you don't need to report anything, as long as the excess was removed prior to filing your 2024 tax return.

If there were any attributable earnings distributed associated with the excess contribution, it has to be removed as well and reported as income for the year the distribution is received.

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K

kingcrumbAuthor

Thank you for the response. To be more specific I requested my HSA to withdraw the excessive contribution amount of $5,000(based on my calcualation). My HSA sent a check to me for $5,000 plus the earnings made on the $5,000). However, Turbo Tax says that the over-contribution amount should be $4,000 not $5,000. How do we fix this problem? Can I just return $1,000 plus proportional earning made back into my HSA and do this before I file my taxes?

B

BillM223

"Can I just return $1,000 plus proportional earning made back into my HSA and do this before I file my taxes?"

No, if you do that, the HSA custodian will report the $1,000 as a new contribution.

TurboTax will not allow you to withdraw a random amount as excess contributions and then force the number into your tax return. The reason for this is that the HSA is not a savings account into which you can willy-nilly put money in and take money out. Instead, all transactions are subject to certain rules.

In the future, please do not do withdrawals of excess contributions until TurboTax tells you the amount. It is difficult for taxpayers to know all the variables that go into calculating the annual HSA contribution limit and the application of contributions.

To your issue, let's see what we can do.

1. The way with the best result would be for you to contact your HSA custodian and declare that the $5,000 was a Mistaken Distribution, and that it should have been $4,000. If the custodian accepts this (they do not have to, so be very nice and grovel), the you will have to send them that $1,000 to put back into the HSA. Yes, this is what you were suggesting, but in this way, their paperwork will not report the $1,000 as an additional contribution.

2. If they do not permit #1 (and it is likely that they won't), then look at your expected medical expenses over the next several months. Remember that HSA payment can cover not just doctors and hospitals but also eye tests and glasses, dental cleanings and fillings, and anything listed in Pub 502.

If you can apply this $1,000 to current year medical expenses not otherwise not reimbursed by insurance or your HSA, then document the list and put it in your tax archives, in case anyone ever asks.

3. You can try to carry over the $1,000 to 2025, if you will have HDHP coverage with no conflicting coverage. The $1,000 would be applied as a "personal" contribution (line 2, 8889). You would need to reduce your planned HSA contributions by $1,000 so that you would not perpetuate the excess, which will be more expensive to fix.

Ask the HSA custodian if they would allow this. Of course, you will need to reimburse them that $1,000 anyway.

4. If you can't do #1, #2, or #3, then you will have to:

A. Change the box 1 amount on the 1099-SA to $4,000 - note that this may invite a letter from the IRS since they got a copy of the original 1099-SA, wondering why the change.

B. Add a pseudo 1099-SA with $1,000 in box 1 and "1" in box 3.

C. When you enter this pseudo 1099-SA, you will state that none of it was used for qualified medical expenses.

D. The result of these entries is that $1,000 will be added to Other Income, and a 20% penalty added to Other Income as well.

As you can see, any of the first three items are preferable to #4.

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