What happens to the excess contribution if I opt to withdraw from my HSA?

[BMcCalpin · Accepted solution]

If you are speaking about TurboTax's request to you to withdraw the excess contribution before April 15, 2019, then this is what happens if you say "yes".

1. If your HSA contributions were through a payroll deduction program, then the amount of the excess will be added back to your "Other Income". This is because the original HSA payroll contributions were removed from boxes 1, 3, and 5 on your W-2, so if they are not valid contributions, they need to be added back to your income to be taxed.

2. If your HSA contributions were direct contributions to your HSA, then TurboTax will simply remove the excess amount from whatever amount that should print on line 25 on Schedule 1 (Form 1040).

3. TurboTax will update form 8889 as needed.

4. YOU must contact your HSA administrator before April 15, 2019 to ask to withdraw "excess contributions". Use this specific language. Your HSA administrator will normally cut you a check for the amount and send it to you.

The net result is that you pay more tax (because an exclusion or deduction got smaller) but the check in the mail will be more than enough to cover it.

[jrollinger]

TT is adding the withdrawn excess contribution onto return for 2018 as other income. My problem is that my HSA benefits manager says they will report the excess withdrawal on the 2019 1099-SA as it was done in 2019 (prior to filing 2018 return). Will I not be paying income tax twice on the withdrawn amount if it needs to be reported again on next year's return too?