How to Correct Contribution in Error to HSA

[spiderdax]

My businesses medical plan year begins Nov 1. I have an employee who was contributing to an HSA plan in 2021. In November '21, she changed plans to a non-HSA plan but we allowed her to continue to contribute to her HSA through the end of '21. The amount in error of the contribution is $50 (from Nov '21 - Dec '21). What is the best way to handle this? Do we reissue a 1099-SA for 2021? Does the employee need to file an amended tax return?

[Anonymous_]

@Mike9241 

[Mike9241]

you do nothing. the issue is solely with her as to any overcontribution which would show up on the HSA tax form.  assuming she had self-only coverage under a high-deductible plan for 10 months of 2021 she would be allowed to contribute about $3000 to her HSA for 2021. this can be through her employer or directly or a combination.  

[BillM223]

To follow up to Mike9241's answer, yes, you as a business have nothing to do. However, if you want to help your employee, please note that the HSA contribution limit for 2021 was $3,600 (to make sure that your estimate of $50 was correct).

Also, it is now too late for your employee to correct this overcontribution by withdrawing the excess contribution - that should have been done by April 2022. If your employee used commercial tax software like TurboTax in early 2022 to do her 2021 tax return, she should have gotten a message warning her that she overcontributed for 2021. This would cause the software to give her a 6% penalty on the overcontribution and to roll over the $50 excess to her 2022 return.

We can't answer the "amend" question because we don't know what her 2021 tax return looks like, but, normally, commercial tax software like TurboTax should handle the situation automatically so she would not need to file an amended return.

The 1099-SA is for distributions, not contributions, so your company would not need to do anything with it.