Reporting of Excess HSA Pre-tax Contributions

[Goodeboys]

I'd like to hear from someone who really knows their way around this topic.   Here is my situation - 

I was enrolled in an HSA with my employer for many years.  It was funded exclusively with payroll deductions and employer contributions.  In June 2025 I turned 65 and enrolled in Medicare Part A.  

October 2025 - I realized I should have stopped pre tax contributions to my HSA once I became eligible for Medicare.  Contributions were stopped at that time.  

I sought assistance from the HSA custodian and my employer, neither of whom were very helpful. 

I  calculated the amount that was contributed in error and in January 2026 I submitted the paperwork to the custodian to return the 2025 excess contribution and interest to me - 

Employee payroll deduction amount - $2307.70

Employer contribution amount - $484.68

Interest - $18.53 

Total $2810.91 - This is the amount the custodian returned to me in early January 2026.  

I received a 1099-SA with code 1 for the qualified medical expenses for 2025 - that part is fine.  

Should I expect to receive another 1099-SA with code 2, this year to report on my 2025 return?  Or, should this "income" be reported on my 2026 return, as that is the year it was returned.  If the latter is the case, I can just proceed as I have in years past and enter the 1099-SA code 1, and deal with the excess next year.  Am I thinking correctly?  

Thank you! 

[BillM223]

1. In the TurboTax 2025 interview, TurboTax will tell you what the excess amount it. TurboTax does this because it is actually difficult for taxpayers to accurately figure this out. Then, when TurboTax tells you the excess amount, the HSA custodian should have calculated the amount of interest due on the excess amount, because, again, it is difficult for a taxpayer to do this accurately. 

As Superchamp dmertz wrote a few years ago:

The instructions for Form 1099-SA instruct the preparer (i.e., the HSA custodian, Ed. note) to use the calculation described in CFR 1.408-11 to determine the amount of earnings attributable to the amount being returned.  It's lame of them to push this responsibility on to you, particularly when you don't necessarily know how the attributable earnings might change between the time you prepare the form and the time the distribution is actually made.  To be done properly so that the distribution conforms to the law, the calculation really needs to be done at the same time the distribution is being made.

2. Yes, normally, you should receive a second 1099-SA reporting the withdrawal of excess contributions. Note that since you have until the due date of the return (April 15, 2026, in this case), your withdrawal was in plenty of time, so no additional penalties will be assessed.

Note that the moment that TurboTax discovered that you had an excess, this amount was added to Other Income on your tax return. When you receive a 1099-SA with a distribution code of '2', that amount (box 1) is ignored because TurboTax knows that the excess was already added about to income (if TurboTax noticed the excess - sometimes the taxpayer didn't really have an excess but withdrew it anyway - this causes problems, which is why we encourage taxpayers not to do anything until TurboTax has reported the excess.

The interest on the excess should appear in box 2 when there is a distribution code of '2'. The interest in box 2 will be added to your taxable income.

3. NOTE: as you suspect, the 1099-SA with the distribution code of '2' should be added to your 2026 return early next spring. That means that the excess will be added to income on your 2025 return but the interest added to your 2026 return. So enter your code '1' 1099-SA on your 2025 tax return and when your code '2' 1099-SA arrives (it could be anytime in 2026 or even early 2027), enter it into your 2026 return.

[Opus 17]

Because your Medicare enrollment stated on June 1, your allowable contributions for 2025 were $3979 if covered by a family HDHP and $2208 if covered by a single plan.

All contributions made by payroll deduction are considered "employer" contributions because you agree to a reduced salary and the employer makes the contributions for you.  These are all reported on your W-2.  You only ever separately report extra contributions outside of payroll.

If your contributions were $2792, you only have excess if you were covered by a single plan, your excess amount was $584.  (If your excess was $2792, that suggests your total contributions were $5000.  Is that correct?)

 When you inform the HSA bank of this and process the withdrawal of excess contribution, they will use the required formula to calculate the attributable earnings.  

The return will not be on a 2025 1099-SA form since the return was processed in 2026.

In Turbotax, I assume Turbotax will calculate the amount of excess as $584 (or $2792), and will ask "will you have this returned by the deadline."  When you say yes, everything will be taken care of for you.  The attributable interest is reported on your 2025 return as interest income even if it was paid in 2026.  If Turbotax does not ask you for the interest amount automatically, you should enter it manually in the Interest Income section. (Check the box for "I did not get a 1099-INT for this interest.")

I'm actually not sure what happens with the 1099-SA you will get in 2026, we can look into that when next year comes.  But, make sure you actually asked for a "withdrawal of excess contributions" and not a regular withdrawal.  If this was processed as a regular withdrawal by accident, it's not too late to fix it but you do need to take action.  A return of excess contributions usually requires a special form to be filled out and the bank will calculate the earnings automatically.  The fact that you calculated the earnings and requested that amount specifically makes me concerned that you just got a regular withdrawal. 

[Goodeboys]

I most definitely used the Return of Excess Contribution form.  The 1099-SA code 1 only included the amount distributed for qualified medical expenses.  The total 2025 HSA contribution as stated on line 12W of my W2 was $5746.15.  I reached the figure of $2792 by adding the EE and ER contributions from June-October.  The interest was easy to calculate because this was simply a bank account that accrued a small amount of interest each month, thus the $18 and change.  

I called the custodian and they told me that I will receive the 1099-SA with code 2 for the distribution in early 2027 to be included with my 2026 return.  I will follow your recommendation and include the interest on this years return.  

Thank you for your guidance.  It has been very helpful.