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Excess 2023 HSA contributions but withdrew in 2024

Forum|Forum|2 years ago
April 1, 2024
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I over contributed to my HSA in 2023. I did not realize the excess contributions until turbo tax prompted me about coverage per month of 2023 this past week. I called HSA provider and have started the process to get the excess contributions withdrawn prior to tax deadline and they stated that this withdrawal of excess contributions will show up on a 2024 1099-SA. I did not receive a 1099-SA in 2023 because I had no distributions during the year.

To my understanding I have to claim the withdrawal of excess contributions and the investment gain on the excess contributions (the # is being calculated for my by HSA company). But if this withdrawal is not being reflected until the 2024 1099-SA do i have to report it in 2024 as well?

Also am i missing anything in the process above to report the excess contributions? and I saw somewhere that there is a 20% penalty on top of income tax on the excessive contributions, is this true?

Best answer by BillM223

You are doing fine.

1. The moment that the excess contributions were discovered by TurboTax, if they were the result of "employer contributions", then the excess is added back to Other Income - you don't have to do anything about this (in fact, please don't even try).

2. The HSA custodian will calculate the amount of earnings that the excess earned while it was in the HSA.

3. This amount will be put on to a 1099-SA for 2024: Box 1 may or may not contain the excess, box 2 will contain the earnings for 2024, box 3 will contain a distribution code of 2 for 2024, in which case the box 1 amount is ignored.

4. Yes, this 1099-SA is for 2024. Why? Because your excess was already added to 2023 income by TurboTax, and the earnings were earned in tax years 2023 and 2024.

5. You've got the process. The 20% penalty is for 2 different cases: (1) if you have to do a distribution but not for qualified medical expenses, or (2) you have to cut off a carryover of excess contributions by doing a distribution not for medical expenses.

Neither of these apply to you.

B

BillM223Answer

You are doing fine.

1. The moment that the excess contributions were discovered by TurboTax, if they were the result of "employer contributions", then the excess is added back to Other Income - you don't have to do anything about this (in fact, please don't even try).

2. The HSA custodian will calculate the amount of earnings that the excess earned while it was in the HSA.

3. This amount will be put on to a 1099-SA for 2024: Box 1 may or may not contain the excess, box 2 will contain the earnings for 2024, box 3 will contain a distribution code of 2 for 2024, in which case the box 1 amount is ignored.

4. Yes, this 1099-SA is for 2024. Why? Because your excess was already added to 2023 income by TurboTax, and the earnings were earned in tax years 2023 and 2024.

5. You've got the process. The 20% penalty is for 2 different cases: (1) if you have to do a distribution but not for qualified medical expenses, or (2) you have to cut off a carryover of excess contributions by doing a distribution not for medical expenses.

Neither of these apply to you.

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K

kledwa13Author

Update: Called the HSA custodian, they told me that because my base HSA account is not an interest bearing account, the excess contribution from their perspective did not earn anything, therefore the removal would just be the excess contribution.

BUT, the excess contribution was invested in the market through the investment platform side of the HSA through a broker. It was my understanding that that investment gain would also need to be removed in addition to the excess contributions themselves. is this wrong?

Therefore I am struggling to find the number that I actually need to pull as an excess contribution. Any resources for how to figure this number out?

Or do i just need to pull the excess contributions as HSA custodian said and not investment gains?

Thanks

B

BillM223

Here is the statute for calculating the earnings on the excess contributions - here. Yes, it says for IRA, but the calculations are the same as for HSA.

You are correct that when you make excess contributions, when you request the "withdrawal of excess contributions" from the HSA custodian, that the custodian should also calculate what the excess earned while it was in the HSA and add that to the 1099-SA to be sent to you.

Ask for a supervisor at your HSA custodian, because there is no reason you should have to do this calculation.

If they refuse to make the calculation, use the link at the top to do it yourself, and document this situation so you can tell the auditor how your HSA custodian fell short on the job if you are ever audited.

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