HSA earnings calculation on excess contribution

[KET33]

Greetings!  I have an excess HSA contribution and am trying to determine the excess earnings calculation in order to fill out the form for HSA Bank to return the funds to me.  

HSA Bank told me the amount should be the interest rate of .15% on the excess contribution.

However that does not seem to match up with the IRS calculation.

Should the Adjusted Opening Balance include subsequent contributions plus interest?

Thank you for any quidance...

Here is an example with an excess contribution of 150.00 to illustrate my questions/confusion here.

Adjusted Opening Balance:

Balance before the overage contribution as of 10/31 = 1000.

Contributions since 10/31 = 100.00 + 200.00

Interest since 10/31 = 1.00 + 1.10

Opening Balance could be 1000 + 100 + 200 = 1300

OR 1000 + 100 + 200 + 1.00 + 1.10 = 1302.10

Should the Opening Balance include interest?

Adjusted Closing Balance:

Balance as of 12/31 = 1302.10

1. Per HSA 150.00 * .0015 = .225
2. Per IRS calculation without using Interest, 150 ((1302.10-1300)/1300) = .242295
3. Per IRS calculation using Interest, 150 ((1302.10-1302.10)/1302.10) = 0

[Anonymous_]

I will page @dmertz

[dmertz]

The computation period begins on the date of the first part of the excess contribution. Since the excess contribution $150 occurred when the $200 deposit was made and that the first $1.00 of interest occurred before that, it seems to me that the adjusted opening balance would be $1301.00.  (If the $200 contribution was made before the $100 contribution, $1300 would be the adjusted opening balance.  I'm instead assuming that $100 was contributed, $1.00 was earned, $200 was contributed and then $1.10 was earned, in that order.)

Adjusted closing balance is $1302.10.

Attributable earnings on a $150 excess contribution would be

$150 * (1302.10 - 1301.00) / $1301.00 = $0.13

Regardless of which calculation is correct, the attributable earnings round to zero when reported on your tax return.

[KET33]

I do apologize - my example assumption was that the excess contribution occurred and included part of both subsequent contributions.

Balance on 10/31 = 1000

Contribution of 300 on 11/10 which includes the 150 excess amount.  Interest on 11/30 of 1.00.  Interest on 12/31 of 1.10.

Based on your response, the Adjusted Opening Balance is 1300 and does not include the interest.  Closing balance is 1302.10 as of 12/31.  Is that correct?

[dmertz · Accepted solution]

Excess contributions are determined on an annual basis, so you can't have an excess contribution followed by a contribution for the same year that is not an excess contribution.  If the excess is $150 and the last contribution was $200, all of the excess came from the $200 contribution.

[KET33]

Thank you - I do understand that.  My only question is whether interest accrued after the excess contribution should be included in the opening balance.  From your prior response, that does not appear to be the case.

There were no other contributions made once it was realized the HSA was over the annual limit.

I truly appreciate your expertise and feedback!

[dmertz · Accepted solution]

Since there were no other transfers or deposits into the account, the adjusted opening balance is the balance immediately following the deposit of the excess contribution.  With $1.00 being earned before the $200 contribution that included the excess $150 was made, that $1.00 of earnings would be included in the adjusted opening balance, making the adjusted opening balance $1,301.00.

[KET33]

Thank you so much!