What to do if HSA custodian will not send back earnings on excess HSA contributions?

[rudy-kessinger]

I maxed out my HSA contribution of $4,300 in early 2025. I got married in early June 2025. My spouse had a general purpose FSA that I became automatically covered by. Per the pro rata contribution rule based on 1st of the month eligibility, my contribution limit in 2025 was only $2,150. I contact my HSA custodian, Optum Financial, to remove the excess contribution & earnings on that excess contribution. They had me fill out this excess contribution removal form here: https://secure.optumfinancial.com/portal/securedownloads/forms?fileName=/downloads/securepdf/forms/C... On the form, they explicitly told me to leave the "interest earnings to remove" in step 2 blank because they would calculate it for me. Of course, they did not calculate it for me and only returned the excess contribution of $2,150. They are telling me whoever told me that Optum calculates it gave me wrong information. They are now saying they cannot remove any excess earnings even if I calculate it myself because they can't send back excess earnings only without having it attached to an excess contribution that is being removed. So, anyone have any idea how I can report the excess earnings? The 1099-SA that they are going to issue will only show $2,150. I haven't done the calculation yet but I believe the earnings on that excess contribution is going to be ~$300-400. How will I report this amount in Turbo Tax? And since I cannot get it removed, am I stuck paying the 6% excise tax on it? How do I not only report it as other income on TurboTax, but specifically report it as excess earnings in an HSA that were not removed so that I can pay the 6% excise tax?

[Opus 17]

Duplicate.

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/what-to-do-if-hsa-custodian-will...

@dmertz can you look at this case?

[dmertz]

I don't have any real good suggestions.  I looked at the Optum Financial form that I think was used and is says that Optum Financial will not calculate the NIA.  I don't think that it's practical to simply obtain a distribution of an amount equal to the NIA that should have been distributed then and distribute that now, particularly because that amount has remained in the account experiencing investment gains and losses.

What might make sense is to treat the original distribution as a distribution of some combined amount of excess contribution and NIA, then obtain a return of excess contribution or the remaining excess.  For example, if the percentage of NIA at the time of the $2,150 distribution was, say, 15%, that distribution could be treated as a return of $1,870 of excess contribution plus $280 of NIA.  In this example that would result in $280 of excess left to be returned, subject to it's own separate NIA calculation (a different percentage due to gains or losses in the account subsequent to the first distribution).  With both distributions done, they will be combined on a single code 2 2026 Form 1099-SA which will show the correct total amount distributed in box 1 but an incorrect amount of NIA in box 2a.  This approach would require entering into 2026 TurboTax a Form 1099-SA showing the correct amount for NIA, then printing and mailing the tax return with an explanation of why the amount reported in box 2 is incorrect and explaining calculation of the actual NIA on the two distributions.  (Unlike for Forms 1099-R, there is no substitute form like Form 4852 that can be used to report an erroneous Form 1099-SA.)

[rudy-kessinger]

I really appreciate the in depth follow up. 

After numerous calls, I was able to get them to return my calculation of earnings on the excess contributions for both 2025 and 2026. My calculation worked out fine I think because the $2,150 excess 2025 contribution was removed on 3/2 and the $900 excess 2026 contribution was removed by my employer today 3/4. Since I do not have access to daily balances, just beginning and end month balances from statements, I am using values from 2/27/26 to calculate the adjusted closing balance.  

I calculated $348.79 for 2025 & $20.32 in 2026 for the earnings. My questions are now the following: 

1) Are both the $2,150 of excess 2025 contributions and the $348.79 of earnings on those contributions to be reported as other income in 2025? Or just the $2,150 as other income in 2025 and the $348.79 as income in 2026? I am seeing conflicting information on this. 

2) Irrespective of the above, how will I enter this in TurboTax? My understanding is that I need to do form 8889 parts 1 & 2, which will then result in the other income being populated on schedule 1 line 8f. I can’t seem to get TurboTax to do that, though. I seem to only be able to enter it as other income with a description on schedule 1 line 8z. Is that fine? My worry is form 8889 will be auto populated showing $4,300 of contributions and a contribution limit of $4,300, when the limit should be just $2,150. Since I’m not receiving the 1099-SA until next year, how can I get form 8889 entered correctly without saying I received a 1099-SA (because I won’t)? 

3. What do I do next year when I receive the 1099-SA that shows the 2025 & 2026 distributions? I will only owe taxes on the 2026 earnings & maybe the 2025 earnings depending on the answer to my first question, but certainly not the $2,150. Do I just not enter the 1099-SA into TurboTax next year? 

Thanks again for all the help. 

[dmertz]

Only the $2,150 will appear on line 8f of your 2025 Schedule 1.  This is accomplished by telling TurboTax in the HSA contributions section that you will have the $2,150 excess returned.  TurboTax will still show $4,300 on line 9 of Form 8889.  That's fine.

The 2026 excess returned plus all of the NIA will appear on line 8f of your 2026 Schedule 1.  This is accomplished by telling TurboTax in the HSA contributions section that you will have the that excess returned and by entering the 2026 Form 1099-SA in the HSA distributions section.

[rudy-kessinger]

How exactly do I say in the HSA contributions section that I will have $2,150 returned? I don’t see any prompt to do that. 

[dmertz]

When in the HSA section TurboTax asks about your HDHP coverage, you'll indicate that you had different types of coverage throughout the year, then indicate Self-Only coverage for January though June and None for July through December.  TurboTax will then indicate that the $4,300 contribution is $2,150 over the limit and will ask what you will do about the excess.

[rudy-kessinger]

I technically did still have self only HDHP coverage every month of the year, just couldn’t contribute because I got covered by spouse’s FSA. Still fine to do it as you’re saying? 

[dmertz]

You say None for July through December because because you had disqualifying coverage for those months.

[rudy-kessinger]

Gotcha, thanks again for the help!