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HSA excess contributions withdrawn after due date of tax return, but withdraw request submitted before due date. Penalty owed?

Forum|Forum|2 years ago
January 13, 2024
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My employer made excess contributions to my HSA in 2021. I submitted a request to withdraw the excess contributions on 4/17/22, but the request was sent to the wrong email address (not my fault), and ultimately the cash did not leave my HSA account until 4/25/22. The money came out of the account after the due date of my tax return (4/18/22), but my request was signed, dated, and submitted before the due date of my tax return. Do I still owe penalties on this amount? Will the IRS accept the date the request was submitted as the "withdraw date"?

Thanks.

Best answer by dmertz

As long as you filed your 2021 tax return or requested a filing extension by April 18, 2022, you had until October 16, 2022 to obtain the return of excess contribution to avoid a penalty on your 2022 tax return.

If you did not file your 2022 tax or request a filing extension by April 18, 2022, your distribution missed the deadline and you do owe the penalty for 2022 and the excess contribution must be included in your income on your 2022 tax return. The excess will be eliminated on your 2023 tax return by treating the distribution as taxable (by indicating that it was not used for medical expenses), but if you are under age 65 you'll own a 20% additional tax on the distribution.

M

Mike9241

The actual withdrawal had to be on or before the due date including any extensions. Otherwise you owe the penalty

M

mclark1987Author

Does the extension date for HSA withdraw only apply if I filed for an extension?

Thank you.

D

dmertz

Employee

Pursuant to section 301.9100-2 of the tax code, the extended due date applies since you filed your tax return by the regular due date.

D

dmertzAnswer

Employee

As long as you filed your 2021 tax return or requested a filing extension by April 18, 2022, you had until October 16, 2022 to obtain the return of excess contribution to avoid a penalty on your 2022 tax return.

If you did not file your 2022 tax or request a filing extension by April 18, 2022, your distribution missed the deadline and you do owe the penalty for 2022 and the excess contribution must be included in your income on your 2022 tax return. The excess will be eliminated on your 2023 tax return by treating the distribution as taxable (by indicating that it was not used for medical expenses), but if you are under age 65 you'll own a 20% additional tax on the distribution.

M

mclark1987Author

Can you clarify what you mean by:

As long as you filed your 2021 tax return or requested a filing extension by April 18, 2022, you had until October 16, 2022 to obtain the return of excess contribution to avoid a penalty on your 2022 tax return.

I did file my 2021 tax return by April 18, 2022. I did not file an extension. Do I owe the penalty?

Thank you.