Excess HSA Contribution

[rocketman352]

My wife was covered by a self-only HDHP every month of the year and I was covered by a family HDHP every month of the year. Therefore, our HSA contribution limit should be $7,200. I contributed $4,850 to my HSA and my wife contributed $2,625.01. That adds up to $7,475.01 which is $275.01 over the limit. However, Turbo Tax is saying that we contributed $832 more than allowed. Can someone please explain how that's possible? I've read multiple other HSA questions and double checked all the recommendations that were offered and I still don't see anything wrong. Also, detailed steps on how to withdraw the excess contribution and report it would be helpful.

[BillM223]

Did you carry over an excess HSA contribution from 2020 of $557? That would explain it, because a carryover from a previous year has the effect (although you can't tell it from the 8889) of reducing your normal annual HSA contribution limit, e.g., in this case, would have reduced your 7,200 limit to 6,368.

First, please confirm if this is the case, and then we can talk about how to withdraw it (carry overs can't be withdrawn as easily as a current year excess).

[rocketman352]

Thank you for responding so quickly! You got it exactly right! We changed jobs in early 2020 and I was only adding up the contributions from our new jobs and forgot to add a contribution from 1 of the old jobs. Yes it looks like we over contributed by exactly $557 ($7,657 total contribution).

[Mike9241]

you contact the trustee/administrator to withdraw the excess contribution made for 2021 (but not the over contribution from 2020) plus earnings thereon.  you pay another 6% penalty for any remaining excess contribution for 2020. you probably won't get a 1099-SA for this until 2023 so you have to pretend that you got one and indicated to TurboTax that you took a funding distribution of the 2021 excess to avoid penalty. earnings are taxed in 2023.

the 6% penalty for the remaining 2020 excess is computed on the lower of the $550 or the year-end value of the HSA.

you continue to pay a penalty every year on the 2020 excess until it's removed by spending on qualified medical expenses.  the other way is to under contribute the max for 2023 (7200-550). the $6650 reduces your taxable wages and the $550 becomes a HSA deduction (so you get the full $7200)