For 2023, we had two HSA family plans: one for me (over 55) and another for my wife (under 55). I had an HSA plan that covered our family for 1/1/2023 - 11/24/2023. I made HSA contributions of $8,471 (including employer contribution). My plan was terminated due to a job change, and my wife enrolled in an HSA plan (for family) for 11/1/2023 - 12/31/2023. During those 2 months, she received $400 as the employer's contribution. She herself did not make any contribution.
Now that we're looking into taxes, we realize we may have exceeded the HSA contribution limit. My understanding is that our total contribution limit is $7,750 + $1,000 (my catch-up). If we add up our contributions, it comes out to be $8,871. Our conclusion is that we have an excess contribution of $121.
We want to do the HSA excess contribution removal with my wife's HSA custodian (HSA Bank) before 4/15/2024 to keep things simple and not incur the excise tax. We're following up with HSA Bank on this. Two questions on this:
(1) Who does the excess money go to? Since it was all employer contribution in my wife's case, I presume that the money will go to the employer and not to us. I suppose we need to instruct HSA Bank specifically to do that?
(2) If the above is true, then do we still declare $121 as ordinary income in the 2023 tax return? Once the removal is complete, essentially it's as if we've never seen that money, correct?
TIA.
