We have an over contribution to our HSA. We placed extra into the account and used it for medical expenses. Are we still subject to the 6% tax?

[LenaH]

Yes. The excess contributions are subject to the 6% excise tax and income tax. The only way to avoid the 6% excise tax is to withdraw the excess contributions by the due date of the return, which is not an option since the excess was spent on medical expenses. 

For 2020, the maximum combined total that you, your employer, and/or any other eligible person can contribute to your HSA account is:

• $3,550 if you're under 55 at the end of 2020 and are covered by an individual (self-only) HDHP;
• $7,100 if you're under 55 at the end of 2020 and are covered by a family HDHP;
• $4,550 if you're 55 or older at the end of 2020 and are covered by an individual (self-only) HDHP;
• $8,100 if you're 55 or older at the end of 2020 and are covered by a family HDHP.

Spouses on separate plans: The $7,100 family limit applies to married couples even if one spouse is covered by a family plan and the other spouse has their own individual plan. In this scenario, the couple may split their respective contributions any way they like, as long as the couple's total contribution doesn't exceed $7,100. (Spouses 55 or older at the end of 2020 are allowed to contribute an additional $1,000 to their own HSA.)

Publication 969

[DADANKO57]

Thank you.  So my wife and I qualify for an $8100 limit.  Why isn't this being accepted?

[Opus 17]

We can’t see your return. First of all, “we“ don’t qualify for anything. An HSA is owned by one person and one person only.  If that person is covered by an eligible family HDHP, their contribution maximum to $7100, plus an additional $1000 catch-up provision if they are age 55 or older. However, if the spouse is age 55 but the account owner is not, the account owners’s contribution is limited to $7100.  If the spouse is not covered by any other disqualifying coverage, the spouse could open an HSA in their own name for their additional $1000 contribution.  The spouse is eligible to contribute to an HSA if they are covered by an eligible plan, even if the insurance policy is in the name of their spouse or their spouse’s employer.

One reason you might be showing incorrect eligibility is if you did not indicate that you were covered by a qualifying HDHP for the entire year.  Another reason would be if you double entered your contributions. All contributions made by payroll deduction are considered employer contributions, because you agree to reduce your salary and the employer contributes the money. This is recorded on your W-2 in box 12 with code W. Later in the program when you are asked about separate contributions, only enter contributions you made with your own out-of-pocket funds, do not enter your payroll deductions again.

Then, if you did make an allowed contributions, they will be added back to your taxable income. You will also pay a 6% penalty on the amount of disallowed contributions that remain in your account, or your account balance, whichever is less.