Withdrawing excess HSA Contribution from 2022 and Penalty

[jkahbb8]

I overcontributed to my HSA in 2022. I use Fidelity and I know missed the deadline to withdraw the excess without penalty. 

The Return of Excess Form for Fidelity says, "In order to use this form, you must be correcting this excess contribution before your tax-filing deadline (including any extensions) of the year for which the excess contribution was made.". 

Not sure how to proceed, as I can't even withdraw the excess. I would appreciate step-by-step instructions on how to proceed from withdrawing the excess to paying the penalty/filing 2024 taxes.

[dmertz · Accepted solution]

You must correct the excess by taking a regular HSA distribution (not a return of contribution) of an amount equal the the excess and treating it as taxable (not used for medical expenses).  If you are under age 65, the taxable distribution will also be subject to a 20% additional tax.

If you used your HSA for medical expenses in 2023, you can eliminate some or all of the penalty for 2023 by treating those payments as taxable (not used for medical expenses) even though they were used for medical expenses.  This will also reduce the amount of excess that remains to be corrected in 2024.