Excess contribution to HSA

[poncho_mike]

My wife went on Medicare in Fe 2024.  She she had an employer health insurance plan and HSA prior to Medicare.   She stopped her HSA contributions in early January, but her employer didn't stop contributions until the first of March.  She over-contributed by about $600.

I thought she has until April 15, 2025 to correct the issue.  We called the HSA holder, they said to contact the employer.  We contacted the employer, they are telling us it is too late to reverse the transaction.  I thought all the employer had to do was withdraw the money, issue her a check, and update her W2.

How do I handle this when the employer is not willing to help us?

[DianeW777]

The excess can be withdrawn as long as it is before April 15th. Contact the plan administrator and remove the excess.

• If you contributed too much or weren't eligible to contribute to your HSA in 2024, you'll need to withdraw the excess amount by April 15, 2025 to avoid a penalty (October 15 if you filed an extension).
• Review the information in the article below and enter information in your tax return to be sure of the excess amount before you withdraw. You have time to do it before the filing deadline. 
  • Why am I showing an excess HSA contribution? - You already know why, the article will provide more answers.

[poncho_mike]

Who is considered the "Plan Administrator"?   The company who has the HSA is telling me the HR Department of my wife's employer needs to do this.

I didn't realize until after I posted that this was for Education.  Sorry.

[KrisD15]

The plan administrator would be the bank or financial institution that issues your 1099-SA. 

[poncho_mike]

@KrisD15   I'm still not clear on how I handle this.   My wife and her employer contributed $1002 to her HSA.  She can contribute a max of $429 to her HSA.  I need to go to the Plan Adminstrator and ask what?  For a plan distribution?  The $573 difference is pre-tax money, and needs to be withdrawn.  Will this result in a 1099 of some sort showing the distribution?

I'm not sure how the mechanism for reporting the $572 which will now be taxable income to us.

Please explain.

[Opus 17]

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@poncho_mike wrote:

@KrisD15   I'm still not clear on how I handle this.   My wife and her employer contributed $1002 to her HSA.  She can contribute a max of $429 to her HSA.  I need to go to the Plan Adminstrator and ask what?  For a plan distribution?  The $573 difference is pre-tax money, and needs to be withdrawn.  Will this result in a 1099 of some sort showing the distribution?

I'm not sure how the mechanism for reporting the $572 which will now be taxable income to us.

Please explain.

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You ask the HSA bank for a "return of excess contribution."  This is not a regular withdrawal, it may require a special form to be filled out and faxed to them.  But the HSA bank must know the procedure and do it all the time, if you got someone on the phone who doesn't know about it, ask for their supervisor.  (Or, the form might also be on their website.)

The $573 is taxable because it is an excess contribution, not because it is returned. (It would be taxable even if you did not ask for a return, but you would also pay a penalty if you don't have the excess returned.). Turbotax has already applied the excess contribution to your taxable income.

The bank must also return any interest or investment income that is attributable to the excess contribution.  How much depends on the interest rate.  This attributed income is taxable on your 2024 return even though it is actually paid in 2025.  Report it as bank interest not on a 1099-INT.  (For example, if the excess is $572 and they return $580, you have $8 of taxable interest to report.)

[poncho_mike]

@Opus 17  Thanks to everyone who has replied to my questions.

The 1099-SA my wife received has a box for Earnings on Excess Contributions, which is $0.  Obviously that's because the plan didn't know she was going to ask for a return of excess contribution when the 1099-SA was sent.  

From the data I entered, TurboTax calculated that she had contributed $573 too much.  Our initial problem was the bank pointed toward the employer, and the employer pointed us toward the bank.  We finally found someone who directed us to the form which had to be filled out and signed to get the excess funds returned.  The form has been submitted.

When filling out theinput information for the HSA, one of the pages was titled "Age at Distribution".  The question asked was "Was my wife age 65 or over when this distribution was received?".  My wife was on HDHP for the month of January 2024, then went on Medicare in Feb.  She had distributions from her HSA all during 2024.  I went through her statements to determine how much she received before age 65 vs after age 65.  Of her total distribution amount, about 15% occurred during the month of January before she transitioned to Medicare at age 65.

Armed with this information, I went through the steps, but I didn't see where it made a difference.  There was no area where I broke up the before age 65 and after age 65 distributions.  How do I answer this question if she turned 65 in Feb 2024?

Last question:  Since there will be interest earned on the HSA excess, I'm not sure where to put it.  In the Interest and Dividends section, I see the "Interest on 1099-INT".  Since I won't have a 109-INT, do I just input it as if I had a 1099-INT?

Thanks for your help.

[MaryK4]

Distributions are always tax free if used for qualified medical expenses.  Medicare only matters for CONTRIBUTIONS.  You will have the earnings on excess on your 1099-SA.  @poncho_mike