I'm struggling to ensure that I handled excess contribution to my HSA in 2021, and could use some advice. I'll share specifics here:
With Employer A till April-end in 2021 on HDHP family plan, enrolled in HSA. Employer A contributed $2600 to HSA in January 2021 as an annual benefit for being on HDHP family plan. Was contributing monthly payments towards maximizing the HSA annual contribution limit of $7200. By the time I left employer A, 2021 contributions to HSA were at $2600 + $1400 (my contributions) = $4000 (rounding up for simplicity). In Feb 2021, not knowing I was going to switch jobs, I started using up the HSA account balance to pay medical bills and used up most of the funds, leaving only about $500 in the HSA account, which means, I used up some of the excess contributions. Due to only 4 months employment with Employer A on HDHP plan in 2021, my HSA was only eligible for a prorated limit total of $2400, creating an excess of $1600 in the tax year of 2021.
Switched to Employer B April-end in 2021 but chose not to use HDHP plan with this employer, still employed here and no plans to use a HDHP plan.
In December 2021, I filed an excess contribution removal form with my HSA administrator for $1600, thinking they would refund the available balance to me (only about $500) and mark the total excess contributions in the appropriate forms. The form was declined with the reason of insufficient funds. In Feb 2022, I filed a new excess contribution removal form for the available balance of $500 and that has been processed, bringing the HSA balance to $0 now. Note - I do not have any earnings on my HSA balances, the money was never invested.
Please advise if I handled the excess contribution removal correctly, and will the excess of $1600 in the tax year of 2021 be reflected in the 1099-SA or 5498-SA correctly, and will I have to pay any penalty while filing taxes for 2021? Shouldn't the HSA administrator record $1600 as the excess, instead of $500? Anything specific I should pay attention to while doing my tax forms? THANK YOU
