2025 Overcontribution to HSA in Former Job - Finished filing for 2025

[erlinac]

I swapped to a low-deductible medical insurance plan in Dec 2024 and requested my former company to stop contributing to my HSA. I didn't notice, but my former employer continued to take money from my paycheck to contribute to my HSA plan for all of Jan 2025, totaling about $345.38 in 2025. There was no interest being earned or lost in my HSA because it was just sitting in a non-investing cash account. Once I finished my time at the company, I rolled over my HSA money that was in Avidia bank into a personal rollover HSA in Fidelity.

I only found out about it when my husband and I were filing our taxes on TurboTax. I thought all I needed to do was withdraw the money so we just completed filing. I called Fidelity and they told me that I need to let Avidia bank know and fill out a removal of excess HSA funds form with Fidelity. Is there anything else I need to do once I've done those two items? Do I need to file a 1040-X or submit a new 1099-SA? If so, could we do that online?  

[BillM223]

First, do not withdraw any money from the Avidia bank, not until I understand your situation.

First, on what day did your new low-deductible health insurance policy become effective? On December 1, 2024, or after? I ask because for purposes of the HDHP, it matters what coverage you had on the first day of the month.

If your low deductible policy became effective on or before December 1, 2024, then you may have had excess contributions in tax year 2024. That is, your annual HSA contribution limit would have 11/12ths of the full annual limit. What kind of HDHP policy did you have, and how much did you contribute to the HSA for tax year 2024?

Next, have you had a conversation with your former employer about them withdrawing their contributions? They have the right to withdraw an HSA contribution if they should have known that you were not entitled to it. However, since it has been so long, either your former employer or Avidia bank may refuse to do this - they're not required to - so we will have to go to Plan B.

If the only contribution to your HSA was the $345.38 in January 2025, then since you did not have HDHP coverage in 2025 (is that true, that you had none during the entire year?), you will have an excess HSA contribution of $345.38 for tax year 2025. I assume that TurboTax has told you that. While you are talking to your ex-employer about them withdrawing the HSA contributions that they should not have contributed, will they be willing to at least withdraw the $345.38 for January 2025? If so, this may eliminate the excess for 2025 (your last day to withdraw was April 15, 2025, but I don't know if the employer has a similar deadline).

Let's say that your ex-employer can't or won't help, then to be totally in the clear, you need to do the following:

1. Amend your 2024 return, showing (if your low deductible coverage started on or before December 1, 2024) that you did not have HDHP coverage in December. Then determine if you had excess HSA contributions with this new HSA contribution limit.

1.A. If you did not have excess contributions in this new scheme, then do nothing. Yes, technically, there is a slight misstatement on form 8889 on your 2024 return, but the important thing is that you had no excess and no carryover anyway, so I (my guess) is that the IRS would rather not have to deal with your 1040-X when there is no change in tax.

1.B. If this new scheme shows excess contributions, then you might have dollars added on your 2025 return to other income (if the excess contributions come from the code W amount in box 12 on your W-2) as well as a 6% excise tax on the excess that was carried over to 2025.

2. Once you have cleared up your 2024 return, then you can do your 2025 return. We can discuss that when you have made all the investigations I have described above.

[erlinac]

To answer your questions and provide more details, the HSA money has been transferred to my Fidelity rollover account since Feb 28th, 2025. There's nothing left in Avidia bank.

My new low-deductible health insurance policy started on Jan 1, 2025 and I still have it to today, and the high-deductible plan ended on Dec 31, 2024. However, the HSA contributions continued throughout Jan 1-31, 2025.

Unfortunately, my ex-employer would not be able to withdraw the money from their end as they have changed HSA banks from Avidia Bank to Elevate in March or April 2025. Also, there isn't any money to withdraw from my HSA account in Avidia bank since I moved it all to Fidelity. 

I have no issues with my 2024 taxes.

[BillM223 · Accepted solution]

"I have no issues with my 2024 taxes." You said that you switched to a low deductible health insurance plan in "Dec 2024", so I had to know what this meant, because it was possible that you indeed would have had issues in 2024.

But in the event, I am glad you don't.

Since there is no impact on your 2024 return, we can look at your 2025 return.

In 2025, you had no HDHP coverage, but you still need to tell TurboTax that you have an HSA, so that you can see the appropriate HSA screens for TurboTax.

You said, "fill out a removal of excess HSA funds form with Fidelity." Yes, this is correct; please do this prior to April 15th (the original due date of the return). And, yes, many HSA custodians have forms to do this online.

Are you saying that you have already received a 1099-SA? Was this for the transfer of HSA dollars from Avidia to Fidelity? If so, that's fine.

You should be getting before January of 2027 a new 1099-SA for the withdrawal of excess contributions that you are about to do (or have already done). Why so late? Because the earnings on the excess belongs on your 2026 return. The box 1 amount for the distribution will be ignored if your distribution code is '2', because TurboTax in 2026 will assume that TurboTax in 2025 took care of adding back any excess amounts.

Another thought. Since you have not made any HSA contributions to the Fidelity HSA account, they may not allow you to do a withdrawal of excess HSA contributions from their HSA account. If so, push hard (but politely), because the alternative will be expensive and awkward.

No, you do not need to do a 1040X for 2024. Just find out if Fidelity will let you do the withdrawal of excess contributions.

[erlinac]

That is correct, 1099-SA from Fidelity for transferring the HSA dollars from Avidia to Fidelity.

I believe I shouldn't have any issues with withdrawing the $345.83 from Fidelity, as the HSA representatives I talked to didn't seem to be worried about it coming out of my account.

Thank you so much for your guidance and expertise!