Question

If I had an excess contribution to HSA on my 2019 return but I spent the full balance of my HSA account before the 2019 tax deadline, should I have excess contr for 2020?

Forum|Forum|5 years ago
February 18, 2021
1 reply
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Didn't I already pay the tax penalty for the overcontribution on my 2019 taxes? TurboTax gives me the option to say that I'll withdraw the full amount by 4/15/2021, but then when I choose it, it tells me I'm too late to remove the excess contribution...but I actually finished spending the full balance in March 2020, before the 2019 tax deadline, and before I filed my 2019 taxes.

TurboTax Self Employed Online

ReneeM7122

Yes, you would be considered to have excess contributions in 2020 if you didn't withdraw the funds. The 6% excise tax applies to each tax year the excess contribution remains in the account. Spending it is not the same as withdrawing it. If you had withdrawn before you filed your 2019 taxes, then it would carry forward and TurboTax would not ask you about the excess contributions. Excess contributions aren’t deductible, and any excess contributions made by your employer are included in your gross income. If the excess contribution isn’t included in box 1 of Form W-2, you must report the excess as "Other income" on your tax return. .

Deducting an excess contribution in a later year

You may be able to deduct excess contributions for previous years that are still in your HSA. The excess contribution you can deduct for the current year is the lesser of the following two amounts:

Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year.
The total excess contributions in your HSA at the beginning of the year.

Amounts contributed for the year include contributions by you, your employer, and any other person. They also include any qualified HSA funding distribution made to your HSA. Any excess contribution remaining at the end of a tax year is subject to the excise tax. See Form 5329.

D

Dean StonehockerAuthor

But as far as I know, I paid the excise tax last year (2019). Even if withdrawing and spending are different, I can't withdraw anything now, because the account is empty and closed. Am I supposed to keep paying excise tax every year for the rest of my life until I can be covered by a high deductible health plan again?

B

BillM223

If you look at Part VII of form 5329 (line 29), you will see that the penalty for carrying over excess contributions is 6% of the smaller of your carryover of excess contributions or the value of your HSA accounts.

Once the value of your HSA drops to zero, then the penalty drops to zero.

It will stay that way until you have HDHP coverage again (if ever) when you can fix the carryover by using the carryover up in lieu of contributions in the first year you are eligible again to contribute to an HSA.

"But as far as I know, I paid the excise tax last year (2019)."

As Renee pointed out, you pay the 6% every year that it is carried over. You won't owe anything this year because the value of your HSAs dropped to zero (did that happen before 12/31/2020?). But you are liable for a penalty (even if line 29 makes it zero) until you can discharge the carryover when you return to HDHP coverage or go on Medicare.

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