Question

HSA Excess Contributions - can I apply those to more than one future year? Or is it limited to just the next year and I have to remove the rest to avoid Excise Tax?

Forum|Forum|5 years ago
February 18, 2021
1 reply
0 views

isn't the 6% Excise Tax much lower than counting it toward my income tax?

TurboTax Live Premier Online

Yes, the IRS allows you to roll forward excess contributions and not remove them, but apply them to future periods. You can’t apply more than you have in excess and you can’t apply more than that year’s HSA contribution limit. The downside to this plan is that you must pay the 6% excise tax on the excess contribution for each year it remains in your account as excess (i.e. not applied).

We can't see your income tax return to know the income tax ramifications of leaving the excess HSA contributions in your account and paying the 6% excise tax. Everyone's tax situation is different.

You can do test return to calculate the income tax versus the excise tax.

See How to make a test copy of your return?

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

U

ukachaka1Author

but I can only apply one future year at a time it sounds like? Or can apply all of the excess to future yearS ? Sounds like no, as you mention the excess left will still be taxed at 6%.

B

BillM223

If you had excess contributions of $2,000 from tax year 2019, then you can carry this over to tax year 2020, with the 6% penalty.

This carryover has the effect of reducing your 2020 HSA contribution limit by $2,000. This will likely cause another excess contribution. Let's say that you contributed less than the full HSA contribution amount in 2020, say $1,000 less.

This would cause $1,000 of the $2,000 carryover to be used up in 2020 (good), and would generate a $1,000 excess ($2,000-$1,000) for 2020. So the $1,000 excess carried over to 2021 would be penalized at 6% (better).

In 2021, you would again reduce your HSA contributions so that what you and your employer contribute is at least $1,000 less than what would be the normal limit for your situation. This will use up the carry over, and you will be free of it.

Does this answer you question?

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"