"Yes,
I have an "after tax"HSA in which I make contributions at my local
bank. I get my paycheck and then I manually contribute to my HSA. I also
have a pretax HSA with my work. I understand the difference."
I'm not sure you do, so let's try an example.
Pre-tax contribution:
Let's say you get a paycheck in the first week of the year. We'll say that the gross amount of pay you earned is $2,000, but you elected to have your employer put $50 in your HSA for you. If you got a W-2 right after receiving that paycheck the W-2 would report Box 1 income of $1,950 and, (assuming no other adjustments), that would be your Adjusted Gross Income if you had to prepare an income tax return.
After-tax contribution:
Continuing, Let's say you get a paycheck in the first week of the year, with a gross amount of pay earned being the same $2,000, but no HSA deduction. We'll further say that the day you get your paycheck you deposit $50 into your HSA. If you got a W-2 right after receiving that paycheck the W-2 would report Box 1 income of $2,000, and if you had to prepare an income tax return line 7 of your Form 1040 would indicate"$2,000." But on line 25 of that Form 1040 - "
Health savings account deduction. Attach Form 8889" - you'd list $50 as a deduction and your Adjusted Gross income would be $1,950, exactly the same as if you made the deduction pre-tax.
So, making a contribution to an HSA with after-tax money doesn't change the "nature" of the money inside the HSA.
Maybe what you're really saying is that you've been contribution after-tax money to an IRA and not taking the deduction. That would certainly make the money inside the HSA "after tax", but to the best of my knowledge and belief there's absolutely no provision in the tax law for having "basis" in an HSA, like there is with an IRA. Indeed the exceptions to the 20% additional tax read:
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Additional 20% Tax
HSA
distributions included in income (line 16) are subject to an additional
20% tax unless one of the following exceptions applies.
Exceptions to the Additional 20% Tax The additional 20% tax does not apply to distributions made after the account beneficiary:
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You see how there's not "distribution is a return of basis" exception?
If you haven't been taking the deduction then I'd suggest that you immediately file amended income tax returns for all open years.
Tom Young
