Contributions made to your Health Savings Account (HSA) through payroll deductions are typically considered employee contributions, not employer contributions. This is because these amounts are deducted from your paycheck and are part of your own funds being contributed to the HSA. However, if your employer allows you to make these contributions through a Section 125 cafeteria plan, they can be made on a pre-tax basis, which provides a tax advantage similar to employer contributions. The $750 your employer directly contributes is considered an employer contribution.
To address an excess contribution to a Health Savings Account (HSA) made by your employer, you need to follow these steps:
1. **Identify the Excess Contribution**: Determine the amount that exceeds the annual contribution limit. For 2024, the contribution limits are $4,150 for self-only coverage and $8,300 for family coverage.
2. **Withdraw the Excess**: Request a corrective distribution from your HSA custodian. This involves withdrawing the excess amount plus any earnings on that excess before the tax filing deadline, typically April 15 of the following year.
3. **Report on Tax Return**: Include the excess contribution amount in your gross income for the year the contribution was made. The earnings on the excess are also taxable in the year they are withdrawn.
4. **Avoid Penalties**: By withdrawing the excess before the tax deadline, you avoid the 6% excise tax on excess contributions. Make sure to keep records of the corrective distribution and any communications with your HSA custodian for your records.
