@tprender627 wrote:
Thank you for feedback on time frame that deadline for obtaining a corrective distribution on ineligible HSA contributions being prior to due date of 2023 tax return.
When reached out to HSA custodian I was advised there is a withdrawal form that indicates a section to request a HSA excess contributions refund by indicating specific amount and tax year. Would need to complete this for 2023 & 2024 contributions. Then should receive a corrected 1099-SA tax form (tied to HSA) and then Box 2 should be marked as earnings one excess contributions.
What is unclear is if HSA custodian will be able to only send corrected 1099-SA or if can provide refund since 2023 gross distributions exceeded the total 2023 contributions. Gross distributions being funds in HSA account utilize for eligible health expenses and there were more funds from carryover from prior year.
Stop.
There is no excess for 2023.
There is no current excess for 2024.
Do you have an excess HSA contribution? I don't think so. Your eligibility to contribute to an HSA is determined based on your medical coverage as of the first day of each month. If Spouse 1 was
a. enrolled in a qualifying family HDHP and had no other "coverage" for January through June 30, and
b. became "covered" by a spouse's FSA starting July 1, then
they would be eligible to contribute up to $7750÷12=$646 per month x 6 months eligibility = $3875. If spouse 1 contributed $1000 there is no excess, and in fact, spouse 1 could contribute up to an additional $2875 as long as the retroactive contribution is made before April 15, 2024, and the HSA bank knows it is a 2023 contribution. The limit is for the whole year, you can make contributions after you are ineligible as long as the total for the year is not more than your allowed total. (An HSA is a bank account that you own, you can make contributions directly to the bank if you choose to, not just through payroll.)
Furthermore, the limitation is on contributing to an HSA, not having an HSA. Once you own an HSA, you can withdraw money for qualified medical expenses at any time, no matter what your current medical coverage is. Your medical coverage only controls whether contributions are allowed.
"HSA was again started in January 2024 per benefit election. Requested HSA contributions to be stopped as of March 1st 2024 due to HSA/FSA interaction making all HSA contributions in 2023 and 2024 now as ineligible. "
This is wrong two ways. An HSA is a bank account or investment that you own, like a savings account or IRA. You can start or stop contributions, but you always own the account, unless you close it for some reason. Second, your 2024 contributions are NOT ineligible and there was no need to stop them.
It is correct that you are not eligible to contribute while covered by the FSA. But as long as you plan to not renew the FSA, then there are two ways to calculate your 2024 HSA contribution eligibility.
1. Using the standard rules, if spouse 1 is covered by a family HDHP, and has "other coverage" from January-June 30, but no other coverage from July 1-December 31, spouse 1's contribution limit for 2024 will be $8300÷12 = $692 x 6 months eligible = $4150. These contributions can be made any time, even now, as long as you don't exceed the overall total.
2. Using the last month rule, spouse 1 can contribute the full $8300 for 2024, as long as they have
a. family HDHP on December 1, 2024
b. no other coverage that would disqualify them
c. they plan to keep their family HDHP for all of 2025
d. they won't have other disqualifying coverage in 2025.
