Excess HSA contribution and how/when to report it on tax return

[luckicj]

I filed for Social Security retirement in February 2026. Although I stopped contributing to my HSA in October of 2025, my employer continued contributions until the end of 2025. Also, I found out during the SS application process that I should have stopped HSA contributions beginning June 1, 2025 due to the Medicare lookback period. I have since withdrawn all excess contributions but am confused about when and how to report the excess. Do I report the excess on my 2025 tax return or next year on my 2026 return? And, if it goes on this year's return, should I expect an updated 1099 to use as a guide? If I won't get a new 1099, how and where do I report it in TurboTax  Deluxe?

[Opus 17 · Accepted solution]

The first question is what is your Medicare start date?   If it was June 1, 2025, then you were eligible for 5 months, and your contribution limit for 2025 would have been $2208 if you were covered by single insurance or $3979 if you were covered by family insurance.  It is the amount that counts, not when in the year the contributions were made.  For example, if you and your employer contributed $200/month for the whole year, you would be under both limits, and not be required to remove anything. 

In the HSA interview, make sure you answer that you did not have qualifying insurance all year, and then click the boxes next to the correct answer for each month (single, family, or none).  Turbotax will calculate your limit.

You must report all contributions made in 2025 on your tax return.  Contributions made by payroll are captured from your W-2, this includes both employer and employee funds (all payroll funds are technically employer funds and are on the W-2).   If you also made separate contributions you list them in the HSA interview.  Turbotax will tell you "you have excess contributions, will you remove them before the deadline??"  Answer yes.  

If the return of excess was made in 2026, you will not get an adjusted 1099 for 2025.  Just answer "yes" and turbotax will remove the excess it calculated from the form.  Then, you need to report any interest that was returned to you as income -- it is 2025 income even though it was paid in 2026.  You can enter it in the Interest Income section and check the box for "this interest is not on a 1099-INT".

If you removed more than the calculated excess, post back here for a followup.  That is a trickier situation because Turbotax calculates the excess based on the rules and if you withdrew more than you should have, that is not automatically handled by the program. 

[RobertB4444]

If you show all of the contributions that were made by your employer for 2025 then the system will let you know that you have over-contributed and ask if you removed the over-contribution before the end of 2025.  You'll answer yes and the system will enter the withdrawal on your tax return.  

There will be no need to enter anything on your 2026 return.

[luckicj]

Thank you for your response. You are correct, my Medicare start date was June 1, 2025 and I had single insurance coverage. I received varying responses about how the excess would be calculated and I did, unfortunately, withdraw the actual amount of contributions from June through December.

So, using the 5/12's method the withdrawal should have been $1591.69. Using the actual contribution method, which is what I used, the withdrawal amount was $1811.55. I made a whopping $34.37 in interest income. 

Also, your answer says to be sure to say I didn't have qualifying insurance for the full year. Won't this get me in trouble with the Insurance Marketplace police? If the answer to that is no, then I assume I choose none for the months of June through December?

[BillM223]

No, you will not be in trouble with any Insurance Marketplace police.

I am sure that when Opus said "In the HSA interview, make sure you answer that you did not have qualifying insurance all year, " he meant that on the screen in the HSA interview with the title "What type of HDHP coverage did [name] have during 2025?" that you should not indicate that you had Self or Family all year, but to check off "[name] had different plan types at different times of the year". 

This is necessary so that the next screen appears in which you can indicate what kind of coverage you had for which months. Yes, answer "Medicare or None" for the months June onward.

[kimberly3ct]

We're in a similar situation.  I withdrew the excess contributions, so that part is done.  You quoted/stated "........"What type of HDHP coverage did [name] have during 2025?" that you should not indicate that you had Self or Family all year, but to check off "[name] had different plan types at different times of the year".  In our case, my husband and I still had the same exact HDHP after he stopped contributing to his HSA (same plan name, same coverage, same premiums).  The only thing that changed was that he stopped contributing to his HSA.  How do I report the excess contributions income on our 2025 taxes?

[Opus 17]

@kimberly3ct 

As I a single, I have not looked at this part of the program this year.  But in the HSA interview, you should be asked "What kind of insurance did taxpayer/spouse have?" And when you enter that you had different kinds of insurance, you will get a list of months and you can indicate "self HDHP", "family HDHP" or "none."  Both spouses might be on the same page, or you might have to run the interview once for the taxpayer and separately for the spouse (I haven't checked lately).

The important thing is that you should check "none" for any month when someone was disqualified for any reason, even if they also had HDHP insurance.  You are replying to an old discussion and I don't know your circumstances, but the original discussed referenced Medicare.  Suppose that you work, and have HDHP family insurance for yourself and your spouse.  You started Medicare in June 2025, and your spouse started Medicare in October 2025.  Even if you also kept your employee HDHP plan, you would check "family" for Jan-May and "none" for June to December, and your spouse would check "family" for Jan-Sept and "none" for Oct-December.   You would do the same thing if you changed jobs or insurance coverage in the middle the year.  Check "self" or "family" for any month that you were covered by an eligible plan and were not disqualified by any other coverage; and check "none" for any month where you were disqualified from contributing to an HSA by way of other medical insurance, or not having insurance at all.

Turbotax will calculate the appropriate amount of excess to be removed, and you go on from there. 

[WWBinPA]

Good content and thanks for your time.  I am confused regarding how to treat the excess contribution. 

By withdrawing all the excess contributions made by my employer prior to the tax deadline, Form 8889 shows the taxable amount to be calculated as "0" on Line 16.  It also appears to negate the need to complete Form 5329 to calculate the 6% penalty.

Once I have completed Form 8889, does TT automatically add the excess contribution (shown in W-2 Box 12 Code W) to my taxable income or do I need to include it as "other income" on Form 1040, Sched 1, Part 1, line 8f?

Thanks again for your time and insight!

[Opus 17]

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@WWBinPA wrote:

Once I have completed Form 8889, does TT automatically add the excess contribution (shown in W-2 Box 12 Code W) to my taxable income or do I need to include it as "other income" on Form 1040, Sched 1, Part 1, line 8f?

Thanks again for your time and insight!

---

Correct, if you remove the excess before the deadline then it is not reported on form 5329.

If the contribution was made by payroll deduction, the add back to line 8f is supposed to be automatic.  When you are ready to file you have the opportunity to print your return or save a PDF and you can review line 8f then.  

[jadziedzic]

Similar circumstance:  I have had an HDHP/HSA for the past several years.  I applied in January 2026 for SS Retirement Benefits to start in April 2026 which automatically enrolled me in Medicare Part A retroactively to July 2025.  When I completed the "What type of plan" questions to reflect "Medicare" for July through December 2025 I then had to provide information from my 2024 tax form with the same set of questions even though I was legitimately covered by the HDHP/HSA for all of 2024.  Why was that needed?

As test I'm going to kludge up a "fake" 1099-SA pretending I withdrew the excess on December 31, 2025 and compare TurboTax's calculated Federal refund to that amount from the "What type of plan" questions.  I'm presuming that should show the same - or close to the same - reduction in my Federal refund; is that a correction presumption?

[Opus 17]

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@jadziedzic wrote:

Similar circumstance:  I have had an HDHP/HSA for the past several years.  I applied in January 2026 for SS Retirement Benefits to start in April 2026 which automatically enrolled me in Medicare Part A retroactively to July 2025.  When I completed the "What type of plan" questions to reflect "Medicare" for July through December 2025 I then had to provide information from my 2024 tax form with the same set of questions even though I was legitimately covered by the HDHP/HSA for all of 2024.  Why was that needed?

As test I'm going to kludge up a "fake" 1099-SA pretending I withdrew the excess on December 31, 2025 and compare TurboTax's calculated Federal refund to that amount from the "What type of plan" questions.  I'm presuming that should show the same - or close to the same - reduction in my Federal refund; is that a correction presumption?

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I can't answer your test question because I don't understand it.  If you had successfully withdrawn the excess contributions during the 2025 tax year, you would get a 1099-R for 2025 using code 2 in box 4.  But be aware that if you complete the removal of excess in 2026 (before the Apr 15 deadline) you will not get a revised 1099-R for 2025.  Instead, you will simply declare the excess on your tax return and remove it.

The questions about 2024 are to see if you made contributions in 2024 under the "last month rule", because if you did, the 2025 contributions are subject to a different kind of penalty.  Assuming you did not use the last month rule to make contributions in 2024, those questions would not affect your tax or refund.  

What I would do is simply answer the interview questions about how much you contributed and what kind of insurance you had.  Your answer for July through December is "none" (no form of eligible HDHP).   For January-June, your contribution limit for 2025 would be $2650 if covered by a single HDHP and $4775 if covered by a family HDHP.  If you contributed more, Turbotax will say something like "You contributed an excess of $2650.  Will you remove that excess before the tax deadline?"  If you say Yes, then the excess will be removed, the deductible amount added back to your taxable income (you lose the deduction on that portion) but there are no other penalties.  Any interest that is paid to you as part of the removal of excess contribution process is declared as taxable income on your 2025 return (even if it is not paid until 2026).  Enter it as bank interest not reported on a 1099-INT. 

[kimberly3ct]

@Opus 17   Thanks for your reply!  I'll give you the background for our situation.  My husband is applying for Medicare the middle of this month.  Because they back date to the 1st, and then make coverage retroactive to 6 months, he should've stopped contributing by 9/1/25.  Due to incorrect information provided by his employer's Aetna concierge (I use that title very loosely), he didn't stop contributing until 10/31/25.  Thus the need to withdraw 2 months of contributions.  The withdrawal was done in January 2026.  We are both going to have the same health plan that we've had for years until midnight of the day he retires, which will be 5/8/26.  He'll then be on Medicare, and I'll be taking Cobra thru his employer.  Expensive as it is, it's cheaper than the Marketplace...grrr!!  I have another 6 years before I can go on Medicare.  That's why I questioned answering that we had a different health plan for part of 2025....because we didn't

Another question I came across is when I report the excess contributions and earnings on Form #8889 for tax year 2025 (so Medicare can see that we withdrew it), when is the money actually taxed?  The 2025 or 2026 tax year?  He won't get the 1099 until 2027.

Sorry for the long reply.......

[Opus 17]

@kimberly3ct 

So let me ask a clarifying question and make some comments, and see where that takes us.

When was your spouse's 65th birthday?  Medicare is only retroactive 6 months if his 65th birthday was more than 6 months ago.  If you are at or near his birthday, it will only be retroactive to the 1st day of the month he turned 65.

HSA contributions can be made any time during the year.  It is not the date of the contribution that counts, but the overall total.  If he is covered by a family HDHP and medicare is really going to be effective 9/1/25, then his contribution limit for 2025 is $6366.  It doesn't matter when the contributions were made--they could even be made after enrollment--as long as the total for the year did not exceed $6366.  If his total for the year is more than $6366 (and you correctly determined his medicare start date) then that is the amount you will need to remove.

If you are covered by his HDHP, you are also eligible to contribute to an HSA in your own name.  You don't have to have an employer, you can open an account at any bank that offers HSA (shop around because they will usually charge a monthly service fee if not sponsored by an employer).  You could contribute up to the combined family maximum (contributions for 2025 can be made up through 4/15/2026) and you can continue to contribute to your account after he goes on Medicare as long as you are covered by a family or self HDHP.  For 2025, if he contributes $6366, you could contribute $3850.  (I can explain that calculation if you need me to.)

[kimberly3ct]

@Opus 17   

He turned 65 in 2021, so he’ll definitely get the 6 month retroactive period.

Regarding your statement about it being the overall contributions that matter and not the 6 months, and that he can still contribute to his HSA after he enrolls in Medicare….I don’t believe that’s accurate.  The 2 screenshots at the bottom of this reply were taken directly from the Medicare.gov website.  It doesn’t mention anything about it being overall contributions instead of 6 months, and it definitely states that you cannot contribute once enrolled in Medicare.

I’ll have to check into an HSA for myself as I will continue on the same HDHP plan that we had, only it’ll just be for me and under COBRA.

Question brought forward from my last reply…….when I report the excess contributions and earnings on Form #8889 for tax year 2025 (so Medicare can see that we withdrew it), when is the money actually taxed?  The 2025 or 2026 tax year?  He won't get the 1099 until 2027.

[Opus 17]

@kimberly3ct 

In this case the Medicare web site is incorrect, or perhaps overly cautious.  The IRS doesn't care when in the year the contributions are made, including retroactive contributions made before April 15 of the following year, as long as the overall eligible total is not exceeded.  That's how form 8889 and instructions calculate it, you can also review publication 969.

https://www.irs.gov/forms-pubs/about-publication-969

https://www.irs.gov/forms-pubs/about-form-8889

In turbotax you enter the amount contributed (workplace contributions are captured from the W-2, not entered separately, but you would separately enter any separate out of pocket contributions).  Turbotax will tell you that you have excess contributions and ask if you will remove them before the April 15 filing deadline.  When you say yes, your form 8889 is adjusted.  Form 8889 should report the net contributions, it does not actually report the excess and the removal, just the net.  The ineligible amount is also added to your taxable wages for the year. 

The HSA bank must also return any Interest or investment gains attributable to the excess contributions.  for example, if you ask for a return of $1000 excess contribution, they might send back $1100.  That extra income is reported on your 2025 tax return even though it was paid in 2026.  Report it as bank account interest and check the box for "I did not get a 1099-INT for this interest.)

In January 2027, you will get a 1099-SA for 2026 with the distribution reported with code 2 for return of excess.  This will not be taxable on your 2026 return.