My 21 year old daughter graduated from college in August '24 and got a job mid November '24. We didn't understand about the dependent child and HSA disqualification so we had her sign up for her HDHP and contributed $450 of her money and the company contributed $450 of their money as a match for December. She didn't get the money until mid January because of a mix up but it was for '24 and was reported on her W-2.
I found this post (https://ttlc.intuit.com/community/taxes/discussion/recently-employed-dependent-child-and-hsa-contrib...) with pretty much the same scenario just different dollar amounts.
So as I understand it I have these options
1. Don't claim her as a dependent on my tax return for '24
2. She can contact her HSA custodian and ask for "a withdrawal of excess contributions" and pay income tax on the amount.
3. Somehow carry over from '24 to '25 and make $900 less in contributions for '25
4. Keep the money where it is and pay the 6% ($54) penalty on top of the income tax on the $900.
My thoughts are Options 2 and 4
With Option 2 if she does the withdrawal that would mean she would get her $450 back and the company would take back their $450 and she would pay income on the $450 (with a corrected W2
With Option 4 she would keep the entire amount, pay the income tax on the $900 and the $54 penalty and she could contribute the entire amount for '25.
Question about option 4. Would she be able to withdraw her $450, keep the employer $450 in the HSA and pay the income tax on the $900 but only pay a $27 penalty?
Mainly I see the penalty as worth it due to the amount that was provided by the employer and I'd rather she not lose that but if I can lessen the penalty and not have to worry about carryover and such it's worth it to eat some penalty. But I need to understand the best way to go about this and stay in the right.
