2016 HSA contribution refunded in 2019 due to insurance error

[dmertz]

Based on the amount on line 9 of your 2016 Form 8889 and your indication that the sum of the contributions was $6,499.84, I assume that the code W amount was $6,499.84 - $166.66 = $6,333.18.  But how much was actually withheld from your paycheck for deposit into the HSA for 2016?  Were these contributions separately identified payroll deductions, contributions made by your employer without being shown as payroll deductions, or were these contributions from a larger a payroll deduction for healthcare coverage in general?

1.  If the $166.66 refund to you plus interest and 50% extra was a mistake by CYC, it seems to me that it should be returned to CYC rather than treated as income (but if it isn't returned, yes, the entire amount should be treated as income having nothing to do with an HSA).

2.  If your Forms 5498-SA shows that only $6,166.52 of the $6,333.18 code W amount made it to the HSA, then the $166.66 should have been included in income on your 2016 tax return, but the statute of limitations for paying tax on the $166.66 expired about a month ago and you should be able to use the $166.66 as you see fit without any tax consequences.

I can't figure how they came up with $7 of interest ($166.66 + $83.33 + $7.01 = $257).  $7 of interest seems way too much for a 0.5% annual interest rate over 3.5 years.  With a 0.5% interest rate on $166.66 I get only $2.93 of interest.  It would take a 1.2% interest rate to come up with $7 of interest on $166.66 over 3.5 years.  Even if they calculated the interest on 1.5 * 166.66 it would take an interest rate of 0.8% to come up with $7 of interest over 3.5 years.

[tax052020]

Point #1 is very unlikely I think. If it turns out to be the case, it should be returned somehow, right.

Point #2 makes sense about the $166

As far as the $6,499 amount from CYC is concerned I am not giving it much weight, instead going by what the bank would say in 5498-SA.

I initially did give CYC transaction Numbers some credibility but don’t think I should anymore.

I am now waiting for 5498-SA, will update once I have received.

[tax052020]

@dmertz     @Opus 17

So I went ahead and filed my 2019 taxes. Here is what happened in last few days, I had multiple discussions with the bank and it has been clear that they got a total deposit amount that is just short of one contribution $166.66 from what it shows on W2. 

5498-SA is on the way but I felt confident from the discussions that it will be exactly as it appears on the bank statements.

So conclusion is CYC did keep the one contribution all these years. From the amount, I filed $83.33 as other income and $7.72 as interest income without 1099-INT.

I would like to thank you both for the support on this. It was a tough one to deal with and without your help I couldn't have finished this. God bless!