HSA Excess Contribution from 2024 never withdrawn - how to handle on 2025 return?

[tb001]

My wife and I are NJ residents filing jointly. In 2024, we both had employer HSA contributions under family HDHP coverage:
- My employer contributed $2,175 to my HSA
- Her employer contributed $6,500 to her HSA
- Combined total: $8,675
- 2024 family limit: $8,300
- Excess: $375

We submitted an Excess Contribution Refund form to UMB Bank (HSA custodian) before April 15, 2025. However, UMB never processed it and lost the paperwork. The $375 excess is still sitting in the HSA account.

We filed our 2024 return assuming the excess had been withdrawn.

I'm now filing my 2025 return and have a few questions:

1. I'm resubmitting the withdrawal form to UMB now. Since the April 15, 2025 deadline has passed, should I select "Excess Contribution Refund" or "Standard Disbursement" on the form? Does the option change because the deadline passed? (Form Image Below)

2. Do I withdraw just the $375 excess, or the excess plus net income attributable (NIA)? If NIA is required, how is that calculated? I m getting conflicting answers. Some say if i had done this before the April 15, 2025 deadline i should have withdrawn  the earnings to avoid penalty but given that deadline is passed i should just remove excess amount (without earnings) and pay the penalty.

3. Do I need to file Form 5329 with the 6% excise tax on $375 for 2024? And again for 2025 since the excess was still in the account on 12/31/2025?

4. Since I filed 2024 assuming the excess was removed, do I need to amend my 2024 return?

5. What forms need to be updated on my 2025 return to account for this (Form 8889, Form 5329, anything else)?

Appreciate any guidance. Thanks.

[MinhT1]

1, On your withdrawal form, you should ask for Excess contribution Refund.

2. You need to withdraw the excess plus any related earnings. Your HSA custodian can calculate the earnings and add them to the amount withdrawn.

3. You need to file form 5329 for 2024 and 2025. For 2024, you need to amend your return to add that form and pay the excise tax.

4. You need to amend your 2024 tax return.

5. On your 2025 tax return, file form 5329 and pay the excise of 6% as the excess was still there as of December 2025. In 2026, you will receive a form 1099-SA reporting the withdrawal of the excess.

[tb001]

Thank you, this is very helpful.

On #2 - I called both HSA custodians (UMB for my wife's account and Fidelity for mine). Neither will calculate the earnings because it's been more than a year since the excess contribution. I've called multiple times and gotten different answers each time. I escalated to a UMB supervisor who is supposed to call back in 2-3 days, but I'm not confident they'll help.

Two follow-up questions:

1. Is there a way to calculate the NIA myself? I believe the IRS formula is: NIA = Excess Contribution x (Adjusted Closing Balance - Adjusted Opening Balance) / Adjusted Opening Balance. If so, what time period do I use for the opening and closing balances given that the April 15 deadline has passed?

2. Given that the deadline has passed and I'll be paying the 6% excise tax on Form 5329 anyway, do I still need to withdraw the earnings along with the $375 excess? Or does the 6% penalty replace the earnings withdrawal requirement for late removals? I've seen conflicting guidance on this point.

[BillM223]

You will be doing a "normal" withdrawal but not for medical expenses, in order to stop the rollover of the excess contributions that were not withdrawn in a timely manner. That is, the excess of $375 for 2024 was not withdrawn (despite your attempt) by April 15, 2025, so you can no longer withdraw it normally but must withdraw it as a "normal" (distribution code '1') and not for medical expenses. 

You will have the excess (as reported on the 1099-SA with distribution code of '1') added to Other Income (because you said it was not for medical expenses), and an additional 20% of the excess added to Schedule 2 (as I recall). So, to answer your question, don't bother trying to calculate and withdrawing the earnings, because you are paying 6% a year as well as a 20% extra at the end when you close the carryover out. Just withdraw the original excess.