"but I won't actually get a 1099-SA until next January, as I took the distribution in 2026, correct?"
You will get the 1099-SA sometime between now and early 2027 - HSA custodians vary a lot in their timetables. However, you are correct that this 1099-SA will go on your 2026 return.
"So does that mean I have to claim the 429 as income again next year?"
Because you did not withdraw the 2024 excess contribution by the due date of tax year 2024 (i.e., April 15, 2025), the rules have changed. It is not sufficient to just withdraw the excess (and its interest); you must do one of two things:
- withdraw the excess as a normal distribution (code of '1'), or
- apply the carryover of $429 to the next year (if you still have HDHP coverage).
Unfortunately, you have already withdrawn the $429 so bullet #2 above is no longer available to you, UNLESS, you can contact the HSA custodian and ask them to regard the $429 (plus interest) as a "mistaken distribution", in which case, the $429 carries over to tax year 2025, and if you reduced your HSA contributions for 2025 to allow for the $429, then the $429 will be considered an HSA contribution in 2025. You would have to sign a form for the HSA custodian, and send them a check for the $429 plus the interest, to undo the mistaken distribution.
This is the simplest and least painful way to deal with excess contributions. If, however, you can't get the HSA custodian to consider this $429 to be a "mistaken distribution" (be nice, because they don't have to do it), the, yes, the $429 will be reported as income again. This is necessary to cut off the excess from being carried over year after year.
HOWEVER, I am concerned that I understand the actual situation:
1. You said, "I failed the 12 month rule, so have an excess HSA contribution of 429.00 for 2024. " Failing the last-rule does cause a penalty, but not excess contributions. If this was not excess contributions, then I have to restate everything above.
2. "I submitted a removal of excess HSA funds in February 2026, and am having them redeposited and credited for 2025. "
What do you mean "you are having them redeposited and credited for 2025?" What is the HSA custodian actually doing? Did you withdraw the $429 and having it redeposited as a contribution for tax year 2025? If so, then withdrawing the $429 was not necessary, it would have carried over to 2025 anyway.
3. When you received the 1099-SA, what was the distribution code in box 3? Was it '2'? If so, that was incorrect, and we can't get this to work until we change this. The problem is that if you contact the HSA custodian and ask for the withdrawal of excess contributions, even if the request is well after the deadline to make such a request (as I noted, generally your original due date), the HSA custodian figures that you know what you are doing (or they are just lazy), and they issue a 1099-SA with a code of '2', which is not valid for your situation.
Please tell me the contents of the first three boxes on your 1099-SA.
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