@ramNAM wrote:
@Opus 17 Then second, because you contributed $4150 in 2024 through payroll but are removing that to make room under the limit, that will be added back to your taxable income (since it was originally excluded from your income).
But that would mean I will be paying tax twice on the same amount.
I had to think about that, and the answer is yes in a way, but really no.
Suppose that you planned all along for 2024 to only contribute $3115 via payroll, because you planned to be under the limit so you could apply the excess. Then the extra $1035 would never have been removed from your wages in the first place, and it would have been taxable as a normal part of your regular salary. What happens now, is essentially the same thing. Adding the income back to your wages puts you in the position you would have been in, if you had planned all along to reduce your contributions. (And in fact, you are still in a slightly better position. HSA contributions are excluded from both taxable income AND income subject to medicare and social security tax, but it only gets added back to income. So you actually still save 7.65% for social security and medicare.)
