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What could be the tax implications for the excess HSA amount on 2022 or 2023 tax year for the money I am requesting to remove my 2022 HSA?

Forum|Forum|3 years ago
April 6, 2023
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I got $863 that I am over for HSA as our family limit of $7300 for 2022. I just want to understand what could be the implications of $863 which was contributed to my payroll for 2022 or 2023 tax year.

TurboTax Online

Best answer by MinhT1

For tax year 2022, you have to report that over-contribution on your tax return. If this excess is not withdrawn by April 18, 2023, you have to pay an excise tax of 6% of the excess for 2022. You'll report the excess and the related tax on form 5329.

For 2023, you can apply the 2022 excess to your 2023 contribution. Make sure to reduce your contribution in 2022 by the amount of excess. If you do this, you will have solved the problem of the 2022 excess. If you do not reduce your contribution and the excess remains in your HSA account at year end, you'll have to pay again the 6% in 2023.

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MinhT1Answer

For tax year 2022, you have to report that over-contribution on your tax return. If this excess is not withdrawn by April 18, 2023, you have to pay an excise tax of 6% of the excess for 2022. You'll report the excess and the related tax on form 5329.

For 2023, you can apply the 2022 excess to your 2023 contribution. Make sure to reduce your contribution in 2022 by the amount of excess. If you do this, you will have solved the problem of the 2022 excess. If you do not reduce your contribution and the excess remains in your HSA account at year end, you'll have to pay again the 6% in 2023.

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himanshushwetakeAuthor

Thank you MinhT1 for taking the time. I will be removing the excess for 2022 before April 18 2023 that part is clear to me now.

However, what is not clear to me is how do I report the over-contribution on my 2022 tax return? I am using TurboTax tool. My employer who is now the ex-employer where this was contributed is not willing to issue a W2c to reflect all that.

Does turbox tax take care of this additional as other income? I see line 8 of 1040 in the tax tool where the excess $863 is reported. I guess I am covered and paying tax for that excess in 2022 with my return.

Thanks

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RalphH1

Your guess that TurboTax is correctly handling your HSA excess situation is correct! As the IRS tells us here in Publication 969, if the employer doesn’t include the amount as income on a corrected W-2, you must put it on line 8 of your return. (It’s also reported more specifically as “Income from Form 8889” on line 8f of Schedule 1 (here), which then flows through to the 1040 line 8. You can see this in “Tax Tools” also...)

Just to clarify, you’re not actually being taxed on the excess contribution itself, as your withdrawing it means it’s treated like it never occurred. (And the penalty which would be showing up on Form 5329 and Schedule 2 is now removed, so you may not even be seeing those forms.) But since the money came out of your checks without being taxed, and you still have it and weren’t able to contribute it to the HSA, that “pre-tax” benefit is now correctly being reversed.

@himanshushwetake, it looks like you’re done with the HSA stuff, but if any other questions come up, the Community is here!

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