HSA Excess Contribution: How to withdraw the full individual limit and report it in TurboTax?

[fastesthorse]

Hello everyone,

I realized I made an ineligible HSA contribution for the 2025 tax year and need guidance on correcting it before the filing deadline.

My Situation:

• 1/1/2025 – 12/31/2025: I had a Marketplace Silver Plan ($0 deductible, non-HDHP).

• 9/1/2025 – 12/31/2025: I also had an Employer-sponsored HDHP.

• The Issue: Because I had the Silver plan for the entire year, I think I was ineligible to contribute to an HSA at all. Is that right? However, I contributed the full $4,300 individual limit. 😔

My Questions:

1. Removal Process (Optum Financial): I have the Optum "Excess Contribution and Deposit Correction Request" form. Do I simply list the full $4,300 for 2025? Does Optum calculate the "Net Income Attributable" (earnings/interest) automatically, or do I need to calculate that myself from my statements before submitting? 
   

2. TurboTax Reporting: How do I reflect this removal in TurboTax?

   • Do I need to complete Form 8889?

   • Where do I enter the "Excess" so TurboTax knows the money was pulled out before the deadline?

   • Since this $4,300 was pre-tax, I assume I now need to report it as "Income" somehow, so it's taxed—how to report this?

Thank you for the step-by-step help!

[Mike9241]

you are correct. You are not eligible to contribute any amount to an HSA due to being covered all year by the non-HDHP

in TurboTax go back to the HSA section and indicate none for the type of coverage for each month. Also, do not enter any info for 2024. Answer yes to the question of withdrawing the excess by 4/15/2026. To actually withdraw the excess, contact the sponsor for the exact procedure to follow to withdraw an excess contribution so a correctly coded 1099-SA will be issued early in 2027. You do not have to wait for it to file for 2025.

[fastesthorse]

@Mike9241 

Hi Mike,

Thank you so much for the instructions! I followed your steps in the desktop software and I have a follow-up.

Could you please take a look at my screenshots below to see if everything looks good?

All relevant steps:

I may have messed up here by touching this 2024 question as you advised not to touch it but I can't clear the radio button. Any way to clear it? Will this selection cause issue for me? (I didn't even have HDHP on 2024.)

Questions:

Q1. Does it all look good and can I submit it as is or do I need to first clear that 2024 selection somehow before I proceed? Please advise.

Thanks again for your help!

[BillM223]

The question "Was [name] covered by a High Deductible Health Plan (HDHP) in 2025?" should be answered "No". Even if you had HDHP coverage, if you had conflicting coverage, you are considered to not have had HDHP coverage for purposes of calculating your annual HSA contribution limit.

This means that some of the rest the screens you should not see. You will see the situations screen - and no answer would appear to be correct.

Then you should see the excess contributions screens, and if you have the dollars in the HSA account, withdrawing the entire excess would be a good idea.

NOTE: the moment that TurboTax detects the excess (that is from the employer) then it adds the excess back to Other Income. YOU DO NOT HAVE TO DO ANYTHING.

When you call your HSA custodian, you should ask for a "withdrawal of excess contributions" (use this exact phrase), Also ask them to calculate your earnings...but many HSA custodians are refusing to do this for no good reason other than lack of customer service. Let us know if they won't calculate the earnings, and we will show you how to do it.

Then, sometime before the end of January 2027, you will receive a form 1099-SA. As Mike says, you do not put this into your 2025 return, but into your 2026 return.

If you did not have an HDHP policy in 2024, then it would be OK to leave that question about December 1, 2024 as "none".

[fastesthorse]

@BillM223 

Hi Bill,

Thank you so much for your answer! Very helpful! 

Ok so I answered "No" to this question 

And came the "Situations" screen and then the screen about 2024 coverage where the previous selection was still intact:

And then asked me if I want to withdraw it:

The screen about calculating max contribution limit screen didn't show up. And the HSA summary screen looks the same as it was before.

I think that covers taking care of HSA on the TurboTax side?

------

Now about the HSA custodian side:

I called them couple weeks ago asking if I need to calculate earnings somehow but the representative himself was confused about my question, so I simply entered the "excess contribution" amount i.e. $4,300 and submitted the form like this:

And they took that exact amount from my account:

And this is my statement from end of last year:

It shows that I had earned $0.36 in interest? Does that mean I should have withdrawn $4,300.36 to avoid risking getting charged 6% penalty on that forever? So, should I submit the form again with $0.36 as well?

Please let me know what should I do next to handle this in the most accurate/ appropriate way.

Thanks again!

[BillM223]

The formula for calculating earnings on excess contributions is this:

1. determine the date that the excess began (i.e., when you went past $4,300 in contributions for the tax year 2025 (1/1/2025 to April 15, 2026).

2. Determine the account's value on that date.

3. Determine the date on which the excess will be withdrawn (as best as you can).

4. Determine the account's value on the date in step #3.

5. subtract the value in step 2 from the value in step 4, and divide this result by the value in step 2.

6. Multiple the ratio created in step 5 times the amount of the excess.

As you can see from your interest rates, the result should not be very large.

Then, if this result is less than $0.50, just ignore the earnings.

If more than $0.50, then contact the HSA custodian and ask if they will consider the recent request to withdraw the excess to be a "mistaken distribution" (if they ask, it's because they declined to calculate the earnings, unlike other HSA custodians). If they accept (be nice because they don't have to), then turn around and ask to withdraw excess contributions PLUS the earnings.

NOTE: You have until the original due date to do this UNLESS you file for an extension, in which case you have until October 15th to do this (do it sooner, would you?). So file for an extension tomorrow, just to be safe.

[fastesthorse]

@BillM223 

Hi Bill,

Thanks again for pointing me in the right direction! I filed for an extension few days ago by paying a $1 to IRS since I'm getting a refund anyways.

And before I try to navigate getting Optum to reverse the initial $4,300 as a "mistaken distribution," I decided to pull my exact transaction history and run the numbers through IRS Worksheet 1-3 (from Pub 590-A) by replacing IRA lingo with HSA to see exactly what my earnings are. 

Could you please review my logic and math below to see if I have this right?

My Worksheet 1-3 Breakdown:

1.Enter the amount of your HSA contribution for 2025 to be withdrawn: $4,300

2.Enter the fair market value of the HSA immediately prior to the withdrawl (include any distributions or transfers made while the excess contribution was in the account): $8,702.52

(Question on #2: My understanding is this should be my last statement's closing balance of $8,510.14 PLUS all the negative amounts/distributions that occurred while the contribution was in the account? So, I added my -$189.63 medical bill and a -$2.75 maintenance fee back in. Is that the correct way to calculate this?)

3.Enter the fair market value of the HSA immediately prior to the time the contribution being withdrawn was made, including the amount of such contribution and any other contributions or transfers made while the contribution was in the account: $8,700.00

(Question on #3: My understanding is this is the balance immediately before I deposited the ineligible money ($0) PLUS all the contributions I made while the excess was in the account, meaning the $4,300 from 2025 and the $4,400 I already frontloaded for 2026. Is that right?)

4. Subtract line 3 from line 2: $2.52 

5. Divide line 4 by line 3. Enter the result as a decimal (rounded to at least three places): 0.0002896...

6. Multiply line 1 by line 5. This is the net income attributable to the contribution to be withdrawn: $1.25

7.Add lines 1 and 6. This is the amount of the HSA contribution plus the net income attributable to it to be withdrawn: $4,301.25

Assuming my math is solid and the earnings are exactly $1.25, here is my question:

Can I skip the entire "mistaken distribution" reversal process and simply submit a second "Excess Contribution Correction" form to Optum for exactly $1.25 to finish this off? Does the IRS care if the principal ($4,300) and the earnings ($1.25) are removed in two separate transactions, as long as the full $4,301.25 is out before my October deadline? Or do HSA Custodians not allow 2X excess corrections?

Please let me know the best way to handle this scenario.

Thank you so much for all your help!

[BillM223]

There are many things, as I think I said, that are not well defined in the land of HSAs. Given that HSA custodian are not particularly cooperative, it falls on the taxpayer to work out a solution that is as close as possible to the intent of the law.

Since you know that your HSA custodian will not calculate the earnings on the excess contributions being withdrawn, then, yes, asking for a second withdrawal (I don't think they're worried about the number of withdrawals) for only the size of your earnings seems like a good way to get your HSA back to where it should be.

Remember to document everything in case anyone ever asks.

[fastesthorse]

@BillM223 

Hi Bill,

That makes sense, and I will definitely save all my math and documentation. I'll also show this thread if anyone asks anything. 😃

And before I submit the second excess removal form for $1.25, I realized there is a timeline gap in my Worksheet 1-3 calculation that I need your advice on.

My $1.25 calculation is based strictly on my last available official statement ending 3/31/26. However, the $4,300 wasn't actually removed until 4/13/26. 

Here is the timeline of my confusion:

• Period 1 (Date when excess began on 9/1/25 to 3/31/26): Earnings (interest) calculated exactly via my last available statement from 3/31/26 and Worksheet 1-3 = $1.25.

• Period 2 (4/1/26 to 4/12/26): The $4,300 was still in the account. Do I also need to calculate the interest it made during these 12 days?

• Withdrawl Event (4/13/26): The $4,300 was removed from the account by Optum Bank on this day. I had submitted the excess removal form on 3/31/26 btw.
• Period 3 (4/13/26 to Second Excess Removal Form Processing Date in Future): The $4,300 excess is gone, but the $1.25 in earnings (interest) calculated up to 3/31/26 is still sitting there. Do I need to calculate the interest the remaining balance generates up until they process my second excess removal form?

My dilemma: If I have to include Period 2 and Period 3, the calculation becomes tough. I would have to guess the Average Daily Balance and my variable APY for April without actually having my April statement yet.

Because of this, is my $1.25 calculation for second submission strictly "incorrect"? Does the IRS expect me to do this complex mid-month math to capture the amount from Period 2 & 3, or is using the end-of-month statement prior to the withdrawal the standard, acceptable way to handle this? (Saw @dmertz talking about this issue as well.)

Is there an easier way to get this final number without having to guess my Average Daily Balance and APY for April?

Thanks again for sticking with me on this. I greatly appreciate your help! 🙂

[CatinaT1]

Period 2 (April 1–12): This is fine. The IRS generally accepts any reasonable method consistently applied. Using the most recent end-of-month statement prior to the withdrawal is a reasonable method for individuals. If your $8,700 balance earned $1.25 over ~7 months, the interest for those extra 12 days in April is roughly $0.08 (8 cents). The IRS is not going to flag a return over a few pennies of interest that wasn't yet posted to a statement.

Period 3: You can ignore this. Once the principal ($4,300) is gone, the excess is corrected. The $1.25 remaining is just a residual debt to the account that you are clearing out. You don't need to calculate earnings on the earnings.

On your 1099-SA (which you'll receive in early 2027), you will see one total in Box 1 (the $4,300 + $1.25) and the earnings in Box 2. As long as the math reconciles on your tax return, the number of transactions is irrelevant.

[fastesthorse]

@CatinaT1 

Hi Catina,

Thank you so much! That is an incredible relief. Trying to figure out the exact daily APY for those middle-of-the-month gaps was driving me crazy, so knowing the IRS accepts the last official statement as a "reasonable method" takes a huge weight off my shoulders.

So, just to be absolutely crystal clear and put this to bed:

I am good to go ahead and submit a second "Excess Contribution Correction" form to Optum for exactly $1.25 right now?

Once they process that $1.25, I am fully compliant, the excess is 100% resolved, and I can just go ahead and file my 2025 tax return with peace of mind?

Thank you again for making this easy to understand!

[CatinaT1]

You are good to go!