@Tiamus wrote:
Correct. My wife's plan is another HDHP that also offers an HSA with employer contributions. That's good information to know about the rollover HSA. I knew about that when it comes to 401k accounts, but didn't consider it for the HSA.
Specifically they sent us a "Health Savings Accounts Excess Contribution Notice." The letter states that we "may" have over contributed. I called today to confirm the amount, and that's when I was told it was around $900. I'm assuming since my wife was a part of the account, maybe they just saw that the total contribution was over $7000? I'm not really sure what triggered the notice. When we were dealing with the HSA through the insurance provider, everything was much more clear. Now that it has been offloaded to another account, it has been harder to track things down.
Yes, this was for the 2020 year. The employer contributions were $6969.84 I thought that that's all we had last year... but as I was typing this I remembered we made a direct contribution of $1000 online to cover a charge that may have over drafted. I completely forgot about that contribution and didn't account for it on the 2020 taxes either. So based on that, it would seem that it was indeed over.
I'm not sure I fully understand the carryover question. We had funds left in the HSA after 2019, but we did not meet the contribution limit that year. We did have covered of the HDHP all year. Age is 29.
I'm happy to answer any questions... I'm just not sure what all details are needed. Thank you for all of your help though!
Yes, you made an excess contribution. It sounds like you also forgot to report the excess contribution on your tax return, you need to go back and do that now, by filing an amended 2020 tax return.
The effect of the excess contribution is that the amount you contributed in excess is not allowed to be tax deductible so you will pay income tax on it. But if you forgot to report the contribution, you already paid income tax on it, so filing the amended return won't change your tax much.
Then, the amount of excess contribution is also subject to a 6% penalty unless you remove the excess. If your account balance is too low to remove the entire excess contribution, then the 6% penalty is charged on the balance as of Dec 31, 2020.
You said you have $25 remaining? Go ahead and take that out as a "withdrawal of excess contributions" and close the account. Some part of the withdrawal may be the interest on the excess contributions, that interest will be taxable income on your 2021 tax return and you should expect a 1099-SA from this HSA bank reporting that income even though you closed the account. In Turbotax, when you report the additional $1000 contribution, it will tell you that $870 was excess and ask if you removed the excess before April 15, 2021. You will indicate you made a partial removal ($25, or whatever the amount is) and you will be asked for the year ending balance. Turbotax will calculate your penalty that you will pay when filing the amended return.
