What is the penalty if I've over contributed to my HSA and fail to withdraw them by the tax due date?

You may withdraw some or all of the excess contributions and avoid paying the 6% excise tax on the amount withdrawn if you meet the following conditions.

You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings.

 

 

your other option is to leave the excess in, pay the 6% penalty, and then under-contribute in 2024

 

 

if you contributed though payroll, the excess will be taxable income, regardless of whether withdrawn or not because the wages on box 1 were reduced by your contributions including the excess or your employer made a tax-free matching contribution that is now taxable up to the excess.

If you filed your tax return by April 15, 2024 or requested a filing extension by April 15, 2024, the deadline to obtain a return of the excess contribution before the due date of your tax return and avoid any penalty.

 

If you truly have made an excess contribution, have missed the April 15 deadline because you did not file your tax return or request a filing extension by April 15, and will not be able to apply the excess as part of an HSA contribution for 2024, resolving the excess is done by making a regular HSA distribution equal to the amount of the excess without any adjustment for investment gains and make that amount taxable by not claiming it as having been used for medical expenses.  A regular taxable distribution is also subject to an additional 20% penalty if you are under age 65 at the time of the distribution.