I found out I over-contributed my HSA in 2020 by $62. I had already filed my 2020 taxes when I discovered this over-contribution. What are my options to correct this?

[Mike9241]

Option #1: withdraw the excess contribution from your account and include it as taxable income for that year. You must do this by the due date (including extensions) of that year’s tax return. Also, you must withdraw any income earned on the excess contribution from your HSA and include the earnings in “Other income” on that year’s tax return. (contact the administrator/trustee to do this option because they must report withdrawal in income withdrawn to the IRS. they calculate the income earned if any)  

Option #2: If you don’t remove an excess contribution by your tax return filing deadline, you must include it as taxable income for the year you made it and pay a 6% excise tax on the excess contribution and any associated earnings. However, if you reduce your HSA contribution for the next year by the amount of the excess contribution, you won’t have to pay the excise tax in following years.

[gloriah5200]

If you made an excess contribution to your HSA, then you must withdraw the excess.

If the 2020 HSA contribution exceeds the allowable amount, the excess must be withdrawn by May 17, 2021 to avoid a penalty (October 15 if you filed an extension).

Form 5329 is created only when you did not withdraw the excess contribution before the due date of the return. 

Normally, when TurboTax tells you about the excess contribution and you tell TurboTax that you will remove it, the excess is added to Other Income (so it is taxed) and that is the end of it - no 5329.

You get 5239 only when you tell TurboTax that you did NOT intend to withdraw the excess by the due date of the return. 

NOTE: if you withdrew the excess before the due date of the return last year, then when TurboTax asks you this year if you overfunded the HSA last year, answer NO. When you withdrew the excess, you "cured" it. TurboTax should really ask "Did you carry over any excess HSA contributions from last year to this year?"

For additional information, please refer to the following link:

What to do about an excess HSA contribution

[andyhwan]

Hi Mike9241,

Thanks for providing the options.  I went with Option #1 to withdrawal the excess contribution made in 2020. I completed a HSA Distributuion fo Excess Contribution form to withdrawal the excess amount made to my HSA in 2020.

I was told by the HSA rep that the removal of excess contribution will be reported in the year the removal was made, which would be 2021. This is what they said verbatim: "The distribution of excess that was processed will reflect on the 2021 1099-SA as it was removed in 2021."

But I thought by removing the excess amount before May 17, 2021, the withdrawal made of the excess to the HSA contribution would apply for tax year 2020.

[andyhwan]

Hi Gloria,

Thanks for your response.  I decided to withdraw the excess contribution made to my HSA for 2020 before May 17.  The HSA bank confirmed they will withdrawal the excess.  I was told that the removal of excess contribution will be reported in the year the removal was made, which would be 2021.  I thought if withdrew the excess amount before May 17, it would be the HSA contribution from 2020.

I had already filed my 2020 Taxes when I found out I had over contributed to my HSA.  I've also received my tax refund check.  Now that I have requested to withdraw the over-contribution of my HSA, what are my next steps to amending my 2020 tax filing?  I'm not clear on what I should do since I was told the withdrawing the excess amount would be applied for 2021.  Thanks.

[BillM223]

What the HSA custodian meant is this:

1. As soon as TurboTax knew you had made excess contributions, this amount was added to line 8 on Schedule 1 (1040) as Other Income. You did not need to enter anything.

2. The earnings on this excess will be reported to you in a 1099-SA that you will probably receive in early 2022. This will go on your 2021 tax return.

3. If TurboTax added the excess to line 8 on Schedule 1 (1040) on your 2020 return, there is nothing to amend. TurboTax has already taken care of it.

"The distribution of excess that was processed will reflect on the 2021 1099-SA as it was removed in 2021.""

Yes, the distribution will take place in 2021, but the tax effects of the excess being taxed is happening in your 2020 return. Only the earnings will be taxed in 2021.

OK?