I had made excess $1035 HSA contribution in 2023. Identified it in March 2025. My HSA custodian returned my excess amount $1035 in March 2025 itself. My understanding is that i need to pay 6% penalty for 2023 and since i removed excess before April 15 2025 does not have to pay penalty for 2024.Do I need to amend my 2023 taxes?Which Tax year my $1035 excess distribution fall into for other income Tax in schedule 1(2023 or 2024 or 2025)?Do i need to file Form 5329 for both 2023 and 2024?Which year 8889 Forms captures the $1035 excess distribution?

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Excess HSA from 2023 Next steps

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April 8, 2025
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I had made excess $1035 HSA contribution in 2023. Identified it in March 2025. My HSA custodian returned my excess amount $1035 in March 2025 itself. My understanding is that i need to pay 6% penalty for 2023 and since i removed excess before April 15 2025 does not have to pay penalty for 2024.

Do I need to amend my 2023 taxes?
Which Tax year my $1035 excess distribution fall into for other income Tax in schedule 1(2023 or 2024 or 2025)?
Do i need to file Form 5329 for both 2023 and 2024?
Which year 8889 Forms captures the $1035 excess distribution?

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Best answer by Opus 17

Unfortunately, the deadline to correct a 2023 excess was April 15, 2024 (or in some cases, October 15, 2024). It is too late to use this procedure to remove the excess contribution.

For 2023, you need to report the excess contribution and pay a 6% penalty. Why was this not done on your 2023 return, what software did you use and how was this missed? (Are you sure you even have an excess contribution?)

For 2024, you file a normal return and report the excess carryover of the $1035 excess from 2023. What happens next depends on whether or not you were eligible to make contributions in 2024, and how much you contributed.

If you are not eligible to contribute in 2024, then you pay another 6% penalty on the excess that was carried forward.
If you were eligible to make contributions in 2024, you can "use up" the 2023 excess by applying it to your 2024 limit. For example, if you are covered by a single HDHP and are under age 55, your limit for 2024 would be $4150. That means you can contribute up to $3115, and the $1035 excess from 2023 will be considered a 2024 contribution and that will remove the excess (but it needs to be properly reported.

If you already contributed the full amount of $4150 for 2024, then you can remove $1035 of excess 2024 contributions before the April 15, 2025. (This is an important difference. You can remove 2024 contributions before April 15, 2025, if you made any. But you can't remove 2023 contributions because its too late.)

If you remove 2024 contributions before April 15, 2025 so that your excess from 2023 will be rolled into 2024, you also need to report any earnings (interest) that are attributed to the excess contribution (the bank will calculate the amount for you). This is reported as bank interest not reported on a 1099-INT in the Interest Income section. If you contributed by payroll deduction, the excess contribution is added back to your taxable income and this is done automatically by Turbotax.

For 2025, it depends on what you can do for 2024. We can talk about that after you tell us about your 2024 contributions.

Your 2023 return will show a 5329 for the penalty and an 8889 that calculates the excess.

Your 2024 return will have an 8889 that either calculates the new excess, or calculates the resolution of the excess, and a 5329 that either pays a new penalty or reconciles the excess and shows no further penalty owed.

M

MinhT1

1. Yes, you'll need to amend your 2023 tax return to report the excess contribution on form 8889 and pay the excise tax of 6% on form 5329.

2. The excess contribution will appear income on your amended 2023 tax return, not in 2024, as you have withdrawn it before April 15, 2025.

3. Form 5329 is needed on your amended 2023 return, not in 2024.

4. Form 8889 for 2023 shows the excess contribution.

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R

ramNAMAuthor

@MinhT1 Will form 8889 need to show distribution of 1035 in 14 a even thought it was received in March 2025?

If we show 1035 in 14a then that spills to Taxable HSA distributions line 16 as 14b limits excess Distributions by tax due date of 2023

O

Opus 17Answer

Employee

Unfortunately, the deadline to correct a 2023 excess was April 15, 2024 (or in some cases, October 15, 2024). It is too late to use this procedure to remove the excess contribution.

For 2023, you need to report the excess contribution and pay a 6% penalty. Why was this not done on your 2023 return, what software did you use and how was this missed? (Are you sure you even have an excess contribution?)

For 2024, you file a normal return and report the excess carryover of the $1035 excess from 2023. What happens next depends on whether or not you were eligible to make contributions in 2024, and how much you contributed.

If you are not eligible to contribute in 2024, then you pay another 6% penalty on the excess that was carried forward.
If you were eligible to make contributions in 2024, you can "use up" the 2023 excess by applying it to your 2024 limit. For example, if you are covered by a single HDHP and are under age 55, your limit for 2024 would be $4150. That means you can contribute up to $3115, and the $1035 excess from 2023 will be considered a 2024 contribution and that will remove the excess (but it needs to be properly reported.

If you already contributed the full amount of $4150 for 2024, then you can remove $1035 of excess 2024 contributions before the April 15, 2025. (This is an important difference. You can remove 2024 contributions before April 15, 2025, if you made any. But you can't remove 2023 contributions because its too late.)

If you remove 2024 contributions before April 15, 2025 so that your excess from 2023 will be rolled into 2024, you also need to report any earnings (interest) that are attributed to the excess contribution (the bank will calculate the amount for you). This is reported as bank interest not reported on a 1099-INT in the Interest Income section. If you contributed by payroll deduction, the excess contribution is added back to your taxable income and this is done automatically by Turbotax.

For 2025, it depends on what you can do for 2024. We can talk about that after you tell us about your 2024 contributions.

Your 2023 return will show a 5329 for the penalty and an 8889 that calculates the excess.

Your 2024 return will have an 8889 that either calculates the new excess, or calculates the resolution of the excess, and a 5329 that either pays a new penalty or reconciles the excess and shows no further penalty owed.

R

ramNAMAuthor

Update on Scenario:

I had change of job and used W2 12 W for HSA contribution calculation.
All of the contribution are payroll deductions
In 2025, realize that an addition contribution of 1035 was made in 2024 for 2023. I am eligible to contribute in HSA in 2024 and 2025.
Contributed to max limit in 2024 so removed excess 1035 in March 2025.
As of now I do not see any earning removed along with excess.

Questions:

Paying penalty for 2023 make sense. Will the excess contribution be shown in Line 9 of 8889 (Employer contributions made to your HSAs for 2023)?
So I have to amend my 2023 Tax returns and add Form 5329 showing excess contribution and penalty?
For 2024 where do we report reconciliation of the excess in 8889( 14a and 14b) or 5329?

O

Opus 17

Employee

For 2023, if you were eligible for all of 2023, your limit was $3850 for a single plan. You would show the $1350 contribution on line 2, $3850 limit on line 3, line 8 will be $3850, your employer contributions on line 9, line 13 zero, then see the instructions because you over-contributed so you have to go to form 5329 Part VII. The excess itself is not shown on form 8889. The excess is on line 48 of form 5329.

Did you ask the plan for a removal of excess, or just a regular withdrawal? If you asked for a removal of excess and they did not return any earnings, then I would assume they don't pay interest? If you asked for a regular withdrawal, that needs to be corrected.

On your 2024 return, you're going to report just the employer contributions, and the form will calculate that you get no additional tax deduction (because the employer contributions were already excluded from your taxable income). The excess is reconciled on form 5329.