Help - HSA excess contribution form 8889

[Jonwang789]

Let’s say I contributed 3k in 2023 via payroll deductions but my limit is 2k

so for 2023, I overcomtributed by 1k

in 2024, I withdrew all excess contributions + earnings 

for my 2023 form 8889, do I tell the IRS my contribution was 3k or 2k?

I’ve been hearing mixed opinions 

[DavidD66]

It depends.  If it is a contribution you made directly, if you withdraw the excess contribution and any earnings by the due date of your return (April 15th for most) you can treat it is if the excess contribution was never made.  You will report the earnings as Other Income on your 2024 tax return.  

If it was an employer contribution reported on Form W-2 your Form 8889 will reflect a contribution of $3,000, and you will enter a removal of excess contribution of $1,000 which will be reported as Other Income on your 2023 return since it was excluded from income.  Any earnings must be reported as Other Income on your 2024 return.   

[Jonwang789]

It was through payroll.

this might seem like a dumb question but if I leave it as 3k on the form 8889, how will the irs know I withdrew the excess and not make me pay a penalty?

[dmertz · Accepted solution]

If you made an excess HSA contribution, TurboTax will notify you that you did so and will give you to opportunity in the HSA section  to indicate how much of that excess contribution you had returned.  If TurboTax does not tell you that you made an excess HSA contribution, you apparently did not do so and you were not permitted to obtain a return of any of the contribution; only excess contributions are permitted to be returned.

[Jonwang789]

Where does it show up on the actual irs form? TurboTax did tell me that I overcontributed 

[dmertz · Accepted solution]

An excess HSA contribution will appear in Part VII of Form 5329.  Because the excess contribution was made via payroll deduction, TurboTax will put it on Schedule 1 line 8f, although I think it should go on Form 1040 line 1h instead.

[Jonwang789]

But I have already corrected the excess so why would I need form 5329? Isnt that form only for paying penalties? I don’t see where on the form I can indicate I corrected this 

[dmertz · Accepted solution]

If when TurboTax tells you that you have an excess contribution you tell TurboTax that you've made the  full corrective distribution, TurboTax will remove the entry from Form 5329 and you'll be left with only the amount that TurboTax reports on Schedule 1 line 8f.  With the corrective distribution having been made in 2024 any investment gain included with the returned contribution  will be taxable on your 2024 tax return when you receive the code-2 2024 Form 1099-SA.

[Jonwang789]

ok so on my form 8889, should my contribution say 3K or amount without excess (2k)? That's the part I am confused about

[dmertz]

Line 9 of Form 8889 will show $3,000 whether the excess is removed or not.

[BillM223]

The reason that the numbers are laid out like this is because before your W-2 was printed by your employer, the code W amount in box 12 on your W-2 was removed from Wages in boxes 1, 3, and 5. That is, this code W amount was not taxed.

However, if part of the code W amount is in excess, then you can't get any tax benefit from that excess. So the excess is added back to your income on line 8f on Schedule 1 (1040).

This happens automatically whether or not you withdraw the excess. The penalty on the 5329 is only if you carry the excess over to next year.

@Jonwang789 

[Jonwang789]

ok thanks, someone told me form 8889 contribution should be contribution WITHOUT excess so I was super confused. Meaning, form 8889 would say 2K instead of 3K

[BillM223]

Listen to @dmertz (and me sometimes) and you won't go wrong...

@Jonwang789 

[user17720531349]

Hi, @BillM223 

I am running into this issue as well for 2025 taxes. I over-contributed to my HSA by $170 via payroll deductions. I have already withdrawn that amount from my HSA to correct this issue, and I see that amount show up on 1040 line 8f. Is that sufficient to trace the correction, or should I also put the $170 on line 8z and state "HSA Overpayment Correction" -- or is that asking for the $170 to essentially be taxed twice? 

Also, my Form 8889 Line 13 is currently 0 -- but for MA state filing, it asks for HSA contributions to be taken from that line. Do I have to say 0 to MA since Line 13 is 0, or can I say my contributions less the correction (i.e. Form 8889, Line 8 )?

Thanks in advance for your answer! 

[BillM223]

No, do not add the excess HSA contribution to 8z - as you can see, TurboTax has already automatically added that amount back to your income.

The line 13 (8889) amount is one of two ways to contribute to an HSA: the first is by payroll deduction (line 9 (8889)) and the other is by direct contribution to the HSA on Line 13 (8889). As a result, the HSA deduction on line 9 has already been removed from income before it ever gets put on your federal or state return. That is why MA is concerned only about line 13, because the first kind of HSA deduction never made it to state income.

In your case (payroll deduction), line 13 should be zero, so just enter zero for Massachusetts for your HSA.