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turrbouser007
Level 1

Excess contribution to HSA withdrawal non medical expense

Hi,

 

I forgot to remove the excess contribution to my HSA account for the tax year 2018. Therefore, for tax year 2019, I have to pay a 6% penalty fee on this excess contribution.

 

In order to remove this excess contribution for tax year 2020, the best solution is to remove the excess contribution as a non medical expense and pay a 20% penalty in addition to the accompanying income tax. For 2020, I am no longer working in the USA, so I want to remove the whole amount (not just the excess) of the HSA account (~$3000) since I do not use the HSA account anymore. My penalty for tax year 2020 would be as follows: 20% of $3000 = $600 and the income tax on the $3000 would be zero since I would not have income in the USA, is this correct? I will exclude the foreign earned income since I will make less than $105,900 overseas.

 

Thank you for the help.

1 Best answer

Accepted Solutions
KarenJ2
Expert Alumni

Excess contribution to HSA withdrawal non medical expense

If you exclude your other income using the foreign earned income exclusion, then you should not have to pay income tax on your distribution of $3,000.  You are correct regarding the $600 penalty.  You will need to pay tax on the penalty.

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3 Replies
KarenJ2
Expert Alumni

Excess contribution to HSA withdrawal non medical expense

If you exclude your other income using the foreign earned income exclusion, then you should not have to pay income tax on your distribution of $3,000.  You are correct regarding the $600 penalty.  You will need to pay tax on the penalty.

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turrbouser007
Level 1

Excess contribution to HSA withdrawal non medical expense

Hi @KarenJ2,

 

Thank you for your answer.

What do you mean by paying a tax on the penalty? Is there an additional tax on the $600 penalty?

 

Thank you.

KarenJ2
Expert Alumni

Excess contribution to HSA withdrawal non medical expense

Thank you for asking.  I am sorry I was not clear.  I just meant that you will have to pay the penalty of $600 even if your taxable income is $0.

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