Where do I add the excess HSA contribution withdrawn?

[puravidapto]

I have an excess HSA (two exmployers for example), and I have withdrawn before the filing deadline. This excess was previously deducted from w-2 box 1, so this needs to be added back. The question is: where should this be entered on ProConnect? I reported on the HSA form, the earning was added as other income but the principal was not.

The situation is similar to excess 401(k) contribution, and Proconnect has a place to enter the excess, it is excess deferral under other income, but I could not find excess HSA contribution withdrawn before the filing deadline (no penalty).

[qbteachmt]

There are two options, and both avoid the 6% penalty.

One is to apply the overage to the next year's qualifying amount.

The other is to remove it, and then the 1099-SA will show how much was distributed, and this will be compared to the amount spent on qualifying costs.

Form 8889:

https://www.irs.gov/instructions/i8889

https://proconnect.intuit.com/community/medical-tax-credits-and-deductions/help/health-savings-accou...

[puravidapto · Accepted solution]

Agree with that there are two options, but you do pay 6% penalty with option 1 ("apply the overage to the next year's qualifying amount"). Unofficial but correct reference: https://www.wageworks.com/employees/support-center/support-and-faq/healthcare/hsa/what-happens-if-i-...

To add the excess employer contribution to income, you put "1" on "report excess employer contributions as other income" field on HSA input screen.

[qbteachmt]

"but you do pay 6% penalty with option 1"

Only the part not rolled forward or removed. For reference, your link isn't very comprehensive; I also saw another that told you the two options are Remove or Do Nothing. Not everyone posts good info on these topics 🙂

Try, for instance:

https://dpath.com/hsa-excess-contributions/

"Future Year Option

The second way to avoid the HSA excess contributions penalty is through the “future year method.” It involves deducting some or all of your HSA excess contributions and applying them to a future year. The IRS does not allow you to apply more than you have in excess. It’s also important to keep in mind that moving the excess to the following year counts towards the future year’s annual contribution limit.

The future year method is more complicated than the removal method, especially if you have earnings from any of the excess contributions. If you opt to roll forward some, but not all, of the excess contributions, you will owe the 6 percent tax on any that are not applied to a future year. Both methods must be completed before your tax filing deadline or you will be charged the excise tax. Consider filing an extension on your taxes to give you more time."

[puravidapto]

For the year with excess, there will be a 6% penalty. The following is from the IRS publication 969. I used an unofficial source as it is short and sweet and obviously correct to me.

Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. The excise tax applies to each tax year the excess contribution remains in the account.

You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.