I hve excess contributions to my HSA . TT is telling me to withdraw the entire amount of my employer contribution. But I spent some of it this year so what do I do?

[MayaD]

First confirm that you have excess contribution. For 2023, the maximum combined total that you, your employer, and/or any other eligible person can contribute to your HSA account is:

• $3,850 if you're under 55 at the end of 2023 and are covered by an individual (self-only) HDHP;
• $7,750 if you're under 55 at the end of 2023 and are covered by a family HDHP;
• $4,850 if you're 55 or older at the end of 2023 and are covered by an individual (self-only) HDHP;
• $8,750 if you're 55 or older at the end of 2023 and are covered by a family HDHP.

The above limits are prorated depending on the number of months you were covered by an HDHP and had no additional health coverage.

Excess HSA contribution?

I recommend revisiting the HSA entry screens to make sure the excess contribution wasn't due to an entry error. Here's how:

1. Open or continue your return.
2. Search for hsa and select Jump to hsa.
3. Answer the questions until you get to the Let's enter your HSA contributions screen.
4. Make sure you didn't accidentally re-enter the amount already listed (from box 12 of your W-2) as this will incorrectly double your total contribution amount.
5. Continue through the HSA screens, making sure you answered all questions correctly

If it is not an entry error, you have a couple of options to possibly correct it:

1.Withdraw your excess health savings account contribution: You have till April 15th to make the correction. 

2.Move your excess health savings account contribution to next year. You can roll forward your excess contribution and use part of next year's contribution limit.

3.Pay taxes on excess contributions and earnings. You will owe taxes on the extra cash your employer contributed, along with a 6% excise tax.

[ Edited, 02/21/2024 6:49AM,PST]
 

[blankfam]

Thank you for your reply.  The reason it is excess contributions is because I graduated college and started a job (with my own insurance and HSA)  late in the year.  My parents can still claim me as a dependent and so I cannot have the HSA contributions.  Unfortunately, I already spent some of the money in my HSA.   Because I've already spent some, I don't know how to withdraw it.

[BillM223]

You can't withdraw money from the HSA that isn't there, so what happens is that the excess amount that you were unable to withdraw carries over to the next year and incurs a 6% excise tax on form 5329.

P.S. the 6% excise tax is actually 6% of the SMALLER of the amount of the carryover or the amount in your HSA on December 31st of the tax year (currently, 2023).

If in tax year 2024, you are still under the HDHP coverage, then make sure to reduce what you might contribute by the amount that is being carried over. The carryover will count as a "personal" HSA contribution in tax year 2024 and will be "used up", stopping the carryover.

NOTE, this will require some work on your part:

1. determining the amount of the carryover.

2. determining how much you can contribute in 2024 without going over the annual limit in light of the contribution in step #1.

3. making sure that any contribution from your employer and payroll deduction from you does not push you over the limit.