Filing a Second Return of Excess

[AlwaysLost]

Hey Folks,
My situation is this:

For the year 2024, I swapped employers, and as a result, I do have over contributions of to my HSA. However, the total contributions from my W-2's do NOT match the physical contributions in my HSA: as my previous employer shows ~$600 (rounding for simplicity), while my HSA provider, Fidelity, only shows ~$450. I'm in the midst of sorting this out between my provider and previous employer, but my main question on top of this is that in January of 2025., I already filed a return of excess HSA contribution for ~$400 as that was what Fidelity's support team told to me to file. However, it looks like no matter what, I'm going to have to file a second return of excess HSA contributions, the question is for how much? Is the initial $400 I filed for, already accounted for in my W-2's, or should I be filing another excess for either $450 or $600?
Thanks!

[Opus 17]

First, I'm confused because $1100 of contributions is nowhere near the limit unless you simply weren't eligible.  Are you abbreviating your story in some other way?  What were your actual contributions?

Second, I would say that you need to act according to what really happened, even if the paperwork is wrong.  You should make every effort to correct the paperwork, and if audited, you have an opportunity to explain (provided you have kept good records, including copies of your attempts to correct the record.)

Third, you don't actually owe a penalty if you spent the money in the account.  Or more specifically the penalty is 6% of the excess contribution or 6% of the account balance, whichever is lower.

Fourth, if you contributed by payroll deduction, make sure you don't also list separate contributions.  Your payroll deductions on your W-2 should include both employer money and your own contributions from voluntary salary reduction.  You don't list your own workplace contributions separately, that can cause a false "over limit" condition.

So let's look at the facts.

1. How much was actually contributed by employer #1, via payroll deduction, including both employer money AND your own voluntary salary reduction?

2. How much does the HSA bank record employer #1 as contributing?

3. What does your W-2 from employer 1 have in box 12 with code W?

4. How much was actually contributed by employer #1, via payroll deduction, including both employer money AND your own voluntary salary reduction?

5. How much does the HSA bank record employer #2 as contributing?

6. What does your W-2 from employer #2 say?

7. Were you enrolled in an HSA-eligible insurance plan for the entire year?  Or, were you enrolled in an HSa-eligible insurance plan on 12/1/24 with plans to remain enrolled for all of 2025?

8. Did you make any extra, out of pocket contributions directly to the HSA bank, not via payroll, and if so, how much?

[AlwaysLost]

Hey @Opus 17!

Sorry I realized my original phrasing made it seem like a I was talking about employer-only contributions when I really mean total contributions. The reason why this is a problem is because my Total Contributions while with Employer 2 are the individual limit of $4150.
To answer the questions:

1. This is what we're trying to figure out as from my understanding, box 12W should correspond to this, but the HSA bank does not show the same number.

2. The HSA Bank shows only $450.

3. Box 12W on Employer 1's W-2 shows $600,

4. I think you meant Employer 2 in which case this is $4150.

5. The HSA bank shows Employer 2 contribution $4150.

6. Box 12W on Employer 2's W-2 shows $4150.

7. I was enrolled an HSA-eligible insurance plan before 12/1/24 with plans to remain enrolled for all of 2025.

8. I have made no extra contributions, nor have I spent any money aside from that initial $400 return of excess filing.

[Opus 17]

I'm not sure why you don't know what was contributed from employer #1.  If you signed up for (for example) $50 per paycheck to be withheld from your pay and sent to the HSA bank, you would know whether you worked for 9 or 12 weeks, and you would have seen the withholding on your pay stub.  Likewise you should be able to look at your bank account online or paper statements and see what deposits are credited to you, independent of form 5498.

Assuming the $450 is correct, it would be best to not file your return until your employer issues a corrected W-2.  Get an extension if needed.  If they refuse to issue a corrected W-2, then I would file by creating a substitute form W-2.  This can be triggered after you enter your W-2, there is page of check boxes for special circumstances and one should be "I received an incorrect W-2 or did not receive a W-2."  Enter the W-2 using the figures you believe are correct (in this case, $450 in box 12 with code W, and everything else the same). For the substitute W-2 you will probably be asked to type a brief explanation.  Make sure you keep your records including your employer's refusal to make a correction.

Then of course, you only need to remove the excess $450.

The path of least resistance would be to enter the W-2 as-is and remove another $150.  The cost to you is that you will pay income tax on the $150 and you will have a little less money in your HSA for future medical expenses.  But, if you enter the W-2 as-is and don't remove the (likely false) excess, you will probably get an automatic letter from the IRS assessing the tax anyway, and then you have to mail in an explanation to the IRS.

[AlwaysLost]

Hey @Opus 17 

Yeah, by sheer coincidence, the program used to fetch pay stubs was down. However, now that I've been able to further look at the payroll deductions, I actually see that there was in total $600 deducted. However, additional investigations into my HSA bank showed that $150 of the contributions from January 2024 were "Prior-Year contributions". However, I'm not sure how to proceed from here.

Thanks!

[Opus 17]

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@AlwaysLost wrote:

Hey @Opus 17 

Yeah, by sheer coincidence, the program used to fetch pay stubs was down. However, now that I've been able to further look at the payroll deductions, I actually see that there was in total $600 deducted. However, additional investigations into my HSA bank showed that $150 of the contributions from January 2024 were "Prior-Year contributions". However, I'm not sure how to proceed from here.

Thanks!

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If $450 is recorded as current year, then that is what you should work off for purposes of determing if you have a real excess for 2024.

Would an extra $150 counted toward 2023 put you in excess for 2023?

Go to the interview for "1099-SA and HSA" accounts on the Deductions and Credits page.  Re-run the HSA interview.  After confirming your contributions from the W-2, click next.  There should be a question "Did your employer tell you about any other contributions. It is uncommon, but sometimes employers make contributions to your HSA that apply to a previous year."  Enter that $150 was made in 2024 but applied to 2023.  That should make everything match for 2023, and the $450 excess you already removed will be correct.

Then, if the extra $150 would have resulted in over-funding 2023, that will have to be addressed separately. 

[AlwaysLost]

The $150 won't put me in excess for the year 2023. However, one thing of note is that I've only removed $400 in excess when I filed the return of excess earlier this year -- because I guess the person I spoke to in January gave me to an incorrect number I guess (?). Does that mean I should file another return of excess for $50?
Thanks!

[Opus 17 · Accepted solution]

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@AlwaysLost wrote:

The $150 won't put me in excess for the year 2023. However, one thing of note is that I've only removed $400 in excess when I filed the return of excess earlier this year -- because I guess the person I spoke to in January gave me to an incorrect number I guess (?). Does that mean I should file another return of excess for $50?
Thanks!

---

Assuming I understand everything you've said, then yes, you need to remove another $50.

Note that for 2025, if you are under age 55, the contribution limits are $4150 for self-only HDHP and $8300 for family HDHP.  So you can just review your 2024 contributions and what you already removed, to make sure that extra $50 is correct.

And as I recall, you are still in the middle of preparing your tax return, correct?  So if you enter your W-2s as is, and make the correction for the 2023 contribution from employer #1, the program should tell you exactly what you need to remove to avoid a penalty.  If the programs says to remove $450, and you removed $400, you need to contact the HSA bank to remove another $50.

And also remember, if that money earned interest, the bank will return that to you as well, and that interest is taxable income on your 2024 return even though it is technically being paid to you in 2025. 

[AlwaysLost]

Awesome, thank you! 

[AlwaysLost]

Oh quick follow-up, if the interest from the excess is considered taxable income, are there any additional filings/forms I have to worry about or wait for, or can I just immediately file the return of excess and complete my return?

[RobertB4444]

Nothing else will be coming.  You enter the return of excess in one area.  If you received extra earned interest on the returned amount then you need to enter it as though you had received a 1099-INT from the HSA management company for that interest amount.  

You may receive paperwork for this next year but since it has already been entered on your 2024 return you can ignore it if you receive it for your 2025 return.

@AlwaysLost