HSA overcontribution 2020

[nejidoreb123]

Hi, I overcontributed $530.72 to my Fidelity HSA for 2020.
On their Return of Excess Contribution form there is an option to:
Redeposit the full amount of the excess contribution made in a prior year plus earnings back into this HSA as a contribution for the current year.

I will do this before Apr 15 2021. 

Do I still have to pay the 6% penalty on the excess?

How do I report this tax wise?

Thank you.

[Mike9241]

no penalty but the income withdrawn must be included on the 2020 tax return.  then in 2021 you get a deduction for the full HSA contribution which I assume will include the income earned in 2020. 

[npierson7]

If you remove the excess contributions and the net income attributable to the excess contribution before they file their federal income tax return you’ll pay income taxes on the excess removed from your HSA, but no 6% penalty

 

[Opus 17]

The question here is one of whether you want to have the $500 you must withdraw returned to your bank account, or to have it re-deposited in the HSA as part of your 2021 contributions.  In either case, the withdrawn amount is reported in the same way on your tax return; that you withdrew the excess plus the interest income it generated before the April 15th deadline filing deadline.

Then, if you are eligible to make contributions for 2021, and would like this money back in the account for that reason, then it is just as easy to have the bank keep it and re-deposit it for you, than it would be for them to mail you a check and for you to turn around and send them a different check back.  If you’re eligible to make deposits for 2021, you can certainly have them keep the money, but you must remember to adjust any future contributions so that you don’t exceed the limit for 2021.