HSA excess self contribution using post-tax income

[szliuhff]

What should I do before/when filing taxes if I make excess self contribution via post-tax income to the HSA account of my prior employer (meaning that my current employer has nothing to do with this contribution)?

[Mike9241 · Accepted solution]

contact the trustee/custodian of the HSA funds and request a withdrawal of excess contributions + earnings thereon before filing you 1040 for 2024. 

For calculation purposes, the latest contributions that you made during the year will be considered the excess contributions. 

You must correct the excess from the same account that you made the contribution to. If you have multiple accounts of the same type as the account you made the excess contribution to (which may have led to the excess contribution in the first place), you need to take the excess from the account that you contributed to last during the year, which created the excess contribution.

[Opus 17 · Accepted solution]

You have one overall HSA limit for the entire year, no matter how many accounts it might be divided between.  If you made excess contributions, you need to remove them by April 15.  You must also remove any earnings that are attributable to the excess contributions (interest, investment gains).  The HSA bank will know to do this, but you must ask for a removal of excess, not a regular withdrawal.   It does not matter which account you remove the excess from.  It can be your money or the employer money that you remove, you do not have to pay it back to the employer.  

When Turbotax calculates you have an excess, the excess contributions will be automatically added back to your taxable income.  If you indicate you removed the excess, you will not be assessed an additional penalty (if you do not remove the excess, it is subject to a 6% penalty that recurs every year the excess is in the account).  The attributed earnings are reported as miscellaneous other income on your 2024 return, even if the earnings are paid in 2025 when you make the withdrawal. 

[szliuhff]

Appreciate the response. A follow-up question - if I have 2 accounts:

1. One from the current employer: $4150 pre-tax contribution were made by both the employer and myself throughout 2024
2. The other from one prior employer: $100 post-tax contribution were made by myself in early 2024 

Is there any restrictions like "I have to remove the excess from one specific account? Or I can remove the excess from either one, as lone as the total removed amount is $100"?

[szliuhff]

Appreciate the response. A follow-up question - if I have 2 accounts:

1. One from the current employer: $4150 pre-tax contribution were made by both the employer and myself throughout 2024 (from eacy paycheck)
2. The other from one prior employer: $100 post-tax contribution were made by myself in early 2024 (as a one-time contribution)

In this case, which account should I request the excess removal? Based on your prior response, I would assume it's the former, but just to double check.

If so, I am also wondering whether the process for removing pre-tax contribution would be more complicated than removing post-tax contribution (or it's not applicable, as it's the same level of complexity as to processing?)

[Opus 17 · Accepted solution]

@szliuhff 

There is no difference in the procedure and it does not matter which account the excess is removed from.   You have to report what you actually did, so you will report a $100 direct contribution in the HSA section, and the $4150 will be captured from your W-2. (You can't just pretend the $100 direct contribution didn't happen, and you can't change your W-2.)  Turbotax doesn't ask, know, or care that you have 2 separate accounts, it's not something captured on the tax forms sent to the IRS, the IRS just needs to know the annual total.  Turbotax will identify the excess and ask if you will remove it before the April 15 deadline.   It doesn't matter which account you remove the excess from, so I would take it from the account that earns less interest, so you have less miscellaneous income to report. 

[dmertz]

Since the HSA custodian is to calculate the investment gain or loss on the contribution that is being returned, the request for a return of excess contribution before the due date of your tax return (including extensions) should generally be made to the HSA custodian of the account to which the excess contribution was made.  However, sometimes the request cannot be made with the corresponding HSA custodian, say, because in the mean time the HSA was moved to a different custodian.  In that case the HSA custodian should ask you to determine the investment gain or loss attributable to the contribution being returned.