Applying an excess HSA contribution to next year - How to handle in TurboTax

[x9redhill]

My husband accidently gave our HSA account number and routing information to a retailer from whom he was expecting an EFT payment for the sale of a item.  That payment then resulted in an excess contribution of $185 to our HSA account since we had already made the maximum HSA contribution for the year in January.

It's my understanding that I can have the HSA account custodian do a "corrective distribution" or "return of the excess distribution".  If this is done before I file my 2025 income taxes, I will then not be subject to the 6% penalty for the excess contribution.  The $185 will be returned to me, but it will be treated as "taxable income".

Alternatively, I can leave the $185 in my HSA account so that it can be applied to my 2026 contribution.  That means I'll need to reduce my allowed 2026 contribution by $185 so that I won't have an excess contribution in 2026.  If I do this, I will be subjected to a 6% penalty in my 2025 taxes for the excess contribution.  That's preferred since 6% penalty is a lower rate that having it become taxable income.

Question 1: Does the HSA custodian need to do anything to apply the $185 excess contribution to my 2026?  For that matter, do they even need to be notified?

Question 2: How would this be handled in TurboTax for my 2025 and 2026 tax returns?  I assume for 2025, it's just a simple as a just recognizing a $185 excess contribution and assessment of the 6% penalty.  But for 2026, how do you indicate in TurboTax that the $185 excess contribution became part of the 2026 total contribution?  I've seen numerous posts on the community where it seems like folks are unable to get ride of an excess contribution and Turbo Tax just continues to carry it forward year-to-year (along with the 6% penalty).

Just trying to decide whether it will be easier to just bite the bullet and have the excess distribution returned to me as "taxable income" in 2025 and be done with it - versus have a messy TurboTax situation with my 2026 taxes.

Thanks in advance for any input!

[RobertB4444]

I think you're looking at this wrong.  Your husband received $185 in income for a sale.  That still needs to be reported as income and will be taxed at the self-employment rate after expenses are taken out.  THEN you can take a deduction for contributing to your HSA.  That deduction will be less because of the 6% penalty.  

Then, on your 2026 return, you will need to show that you took the $185 out and then made the full allowable contribution separately.  Even though the money technically just stayed in there.

Either way the tax savings that you are looking for just isn't there with leaving the money in.  I recommend you just pull it out.

@x9redhill 

[dmertz]

[Edit:  Corrected to reflect that the deposit occurred in 2025.]

It appears that this deposit happened in 2025.  There is no deduction for an excess contribution.  You will need to enter it into 2025 TurboTax as an ordinary personal $185 contribution.

The deadline to request a return before the due date of your tax return of an excess contribution made for 2024 is October 15, 2026 if by April 15, 2026 you either filed your 2025 tax return or you requested a filing extension and when TurboTax indicates that the $185 entered as a personal contribution is an excess contribution you'll indicate that that you will have it returned.  If you do not timely file your tax return or request a filing extension, the deadline will be April 15, 2026.

With an uncorrected excess contribution reported on your 2025 tax return, when you transfer your 2025 tax file into 2026 TurboTax to begin your 2026 tax return, TurboTax will transfer in the $185 excess and allow your husband to treat it as part of his 2026 HSA contribution (assuming that applying the $185 would not result in an excess contribution for 2026).  Doing so will result in the $185 being deductible on your 2026 tax return and will eliminate the 6% penalty that would otherwise apply for 2026.