this is straight from IRS PUB 969 on the HSA section
Excess contributions. You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Excess contributions aren’t deductible. Excess contributions made by your employer are included in your gross income. If the
excess contribution isn’t included in box 1 of Form W-2, you must report the excess as “Other income” on your tax return. Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the account.
You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.
• You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
• You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings
I was told that with tax extension period the HSA w/ family coverage for me and my wife are now treated as HSA with self only and now I have way more excess than $1400. The IRS rules for HSA excess fix for April 15, 2022 date is different than the tax extension date I have i.e. Oct 15,2022. This is all confusing. Can you help sort this out?
i don't know where you got such erroneous info. as you can see from the IRS PUB you have until 10/15 to withdraw the excess and earnings which can be from either account. when both spouses have an HSA a/c and qualifying coverage the IRS allows splitting of the maximum contribution (ignoring the extra $1000 for being over 55) any way you want. ($7200,0 or 0, $7200, or $1000, $6,200) and since you both contributed with family health insurance coverage, that does not change.
do not attempt to do the withdrawal yourself. contact an HSA custodian and tell them you need to withdraw an excess contribution of $1400, they will compute the income that also has to be withdrawn
your other option, leave the excess in and pay the 6% penalty.
there is a quirk in how the penalty is computed on form 5329 (Part VII). it's the lesser of 6% of the excess contributions or the fair market value of the account on 12/31/2021
then under contribute the maximum for 2022 by $1400. leaving the excess in is not advisable if you're going to have an excess year after year because you'll pay the 6% each year.
