a) The penalty for an excess HSA contribution applies every year until the excess is corrected by either removing the excess or applying the excess as part of your eligible HSA contribution for a subsequent year.
b) The instruction in bold is for those who did not transfer in a 2023 TurboTax file to begin their 2024 tax return, perhaps because they did not use TurboTax for their 2023 tax return or for those who corrected the excess before the due date, including extensions, but after filing and used their original 2023 tax file instead of their amended 2023 tax file to begin their 2024 tax return.
If you are ineligible to apply the $1,500 as an HSA contribution for 2024, the excess remains for 2024 and your penalty is 6% of the lesser of either the excess or your balance in HSAs. Assuming that your HSA balance is above $1,500, that means a penalty of $90 for 2024. To remove the excess now in 2025 you must obtain an ordinary distribution of $1,500 and make it taxable by not applying it to medical expenses. If you are under age 65, this distribution will also be subject to a 20% additional tax. As you can see, the consequences of not correcting an excess HSA contribution timely can be rather severe.
