Question

HSA Excess contribution made in 2021, withdrawn in Jan 2022.

Forum|Forum|4 years ago
January 22, 2022
1 reply
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I over funded my HSA in 2021.

The excess contribution and associated earnings were removed from the HSA in January 2022. The HSA custodian has classified the distribution of excess contributions and earnings as a 2022 event and said they will report it on my 2022 1099SA.

Since the distribution was received in 2022 and will be reported on my 2022 1099SA, will it be included on my 2022 8889 and taxed as 2022 income on my 2022 1040 Schedule 1? Or will it be included on the 2021 1040 Schedule 1?

All of my 2021 contributions were made through payroll and do not show as income on my W2.

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Mike9241

if your HSA contributions were made through payroll they should show up on your w-2 box 12 code w. This includes any employer contribution + any amount taken out of your salary. the amount taken out of your salary should reduce line 1 taxable wages on the w-2.

since you withdrew the excess including earnings before the due date of your 2021 return they are reported on line 14b of form 8889 for 2021 so no penalty. the income withdrawn is also taxable in 2021

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Bruce801Author

Thanks @Mike9241 . If the HSA custodian is correct in telling me that the distribution of excess funds contributed in 2021 will be included on my 2022 1099SA since the funds were removed in January 2022, wont that trigger a taxable distribution in 2022 on line 16 of my 8889 since the amount would be included on line 14a of the 2022 form 8889?

For 2021, the HSA custodian is saying I will not receive a 1099SA as I did not receive any distributions during 2021. Is this correct or should they be issuing a 1099SA for the 2022 distribution of the 2021 excess contribution and earnings?

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Mike9241

it should be on a 2021 1099-sa

here's from the 2020 pub 969 on HSA excess contributions. the rules did not change for 2021

Excess contributions. You will have excess contributions if the contributions to your HSA for the year are greater than the limits discussed earlier. Excess contributions aren’t deductible. 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.
Generally, you must pay a 6% excise tax on excess contributions. See Form 5329, Additional Taxes on Quali-fied Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the excise tax. The excise tax applies to

each tax year the excess contribution remains in the account. You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn if you meet the following conditions.
•You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
•You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year (I take the word "for" to mean 2021 - if it said "in" the year I would take it to mean 2022) you withdraw the contributions and earnings