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Hi, on jan 2020 my employer put 2k in hsa act (with high HDHP ). But before the end of jan I quit job and the new employer does not have provide HDHP. is hsa amt taxable?

Forum|Forum|5 years ago
April 21, 2021
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I have made no other contribution to this account

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Best answer by Mike9241

for a single individual, the max HSA for 2020 is $3550 which is prorated by the number of months covered by a HDHP. if you have both HDHP and NON-HDHP coverage in a month, that month does not qualify. so if you quit in January and started with the new employer also in January, you have 0 eligible months which makes the entire $2,000 taxable for 2020. not only that, you have to withdraw the excess contribution and earnings thereon by 5/17/2021 to avoid a 6% additional penalty on the excess contribution. that penalty repeats every year until you either withdraw the excess and earnings or become eligible to apply the excess to future years because you became covered under a HDHP.

DaveF1006

No, the $2k contribution made by your former employer is not taxable.

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M

Mike9241Answer

for a single individual, the max HSA for 2020 is $3550 which is prorated by the number of months covered by a HDHP. if you have both HDHP and NON-HDHP coverage in a month, that month does not qualify. so if you quit in January and started with the new employer also in January, you have 0 eligible months which makes the entire $2,000 taxable for 2020. not only that, you have to withdraw the excess contribution and earnings thereon by 5/17/2021 to avoid a 6% additional penalty on the excess contribution. that penalty repeats every year until you either withdraw the excess and earnings or become eligible to apply the excess to future years because you became covered under a HDHP.

3

3rishi3Author

Hi, thanks for info. Say I pay taxes on 2k (line 8 on Schedule 1 (1040) as other income) and get this 2k excess money out by apr 17 2020. Then for 2021 hsa admin will issue a 2021 1099-SA that will have this amount of 2k as excess contribution. So my question is as this amount has already been taxed in 2020 so no worry paying taxes on it even when it shows up on 2021's 1099-SA. Is that correct?

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BillM223

@3rishi3

"so no worry paying taxes on it even when it shows up on 2021's 1099-SA. Is that correct? "

Yes, that is correct. The 1099-SA that will arrive in early 2022 for 2021 will have a distribution code of "2", so TurboTax knows that only the earnings in box 2 are to be added to other income - the amount in box 1 (if it is even there) will be ignored.

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Opus 17

Employee

Yes, it is taxable.

If you were enrolled in a family HDHP for 1 month, your contribution limit is $295, or $591 if you were enrolled in a family plan. (You can add an additional $83 if you are age 55 or older). Anything over that limit is an "Excess contribution."

If you withdraw the excess contribution, it will be added to your taxable income. If you don't withdraw the excess contribution, it will be added to your taxable income AND there will be a 6% penalty on your 2020 tax return and every year after that that the excess remains in the account. If you already spent the money, it will still be added to your taxable income, but there won't be a penalty.

To withdraw the excess contribution, you must request a "return of excess contribution" from the HSA bank. This is a special procedure, not a normal withdrawal, and must be done before the filing deadline of May 17. The HSA bank must also return any interest that was earned by the excess contribution, which will be reported as interest income on your 2021 return since it was paid to you in 2021. (If you can't request a return of the excess because you spent the money, don't worry, you must still report the excess and pay income tax but you won't be penalized.)