Ineligible After Tax HSA contributions

[Marcin S]

Hi,

At the beginning of 2023 Some automatic scheduling system made 3 contributions to my HSA account from after tax checking account totaling $1800. I was not eligible for HSA this year and I stopped auto contributions right after I noticed that. I forgot about this and now in 2024 I'm not sure what I should do with it.

Obviously I cannot make a contribution deduction on my tax return but Am I still owing excise tax even after I contributed with after-tax dollars? Should I work with HSA administrator to remove that contribution amount from my HSA to prevent any future issues?

On the side: I am HSA eligible starting this year

Thanks

[Opus 17]

You have until the tax filing deadline (April 15, 2024) to remove the excess contributions.  You will then treat it on your tax return as if the contributions were never made.  Contact the HSA bank to do this, there will likely be a special form, it is not a normal withdrawal.  If the excess contributions earned any money, that will also be withdrawn, and those earnings will be taxable as "other income" on your 2024 return (for earnings that were removed in 2024). 

Even though the contributions were after-tax and not through an employer, they are still subject to the 6% penalty if you leave them in the account, and the penalty recurs in every future year unless you spend the account down or find another way to make the contributions no longer count as excess.  

[Marcin S]

Thanks, that's great to know I still have time until tax deadline to fix it.