TP is covered under employer hdhp and also under spouse's non-hdhp. Employer contributed to employee's HSA, but since TP covered under spouse's plan also, TP not qualified to have HSA contributions.
Notice 2004-2 Q&A 22 says "Contributions by an employer to an HSA for an employee are included in the gross income of the employee to the extent that they exceed the limits described in A-12 or if they are made on behalf of an employee who is not an eligible individual. In addition, an excise tax of 6% for each taxable year is imposed on the account beneficiary for excess individual and employer contributions." Then it goes on to explain how to correct an excess contribution.
Taxbook 29-11 says "Note: If an individual fails to remain an eligible individual dur-ing any of the testing periods discussed earlier, the amount included in income is not treated as an excess contribution. If those amounts are withdrawn, the amount is treated as a distribution and reported as income subject to 10% penalty on Form 8889."
Since the employee was ineligible during all periods, is the contributed amount treated as an excess contribution which can be pulled out to prevent the 6% excise tax, or is it just reported as income with the 10% penalty on the 8889. Or is it both? Income, 10% penalty, then take out of the HSA before return due date to avoid 6% excise tax. Amounts have already been distributed for medical expenses.
I'm reading in circles and am now confused.
Notice 2004-2 Q&A 22 says "Contributions by an employer to an HSA for an employee are included in the gross income of the employee to the extent that they exceed the limits described in A-12 or if they are made on behalf of an employee who is not an eligible individual. In addition, an excise tax of 6% for each taxable year is imposed on the account beneficiary for excess individual and employer contributions." Then it goes on to explain how to correct an excess contribution.
Taxbook 29-11 says "Note: If an individual fails to remain an eligible individual dur-ing any of the testing periods discussed earlier, the amount included in income is not treated as an excess contribution. If those amounts are withdrawn, the amount is treated as a distribution and reported as income subject to 10% penalty on Form 8889."
Since the employee was ineligible during all periods, is the contributed amount treated as an excess contribution which can be pulled out to prevent the 6% excise tax, or is it just reported as income with the 10% penalty on the 8889. Or is it both? Income, 10% penalty, then take out of the HSA before return due date to avoid 6% excise tax. Amounts have already been distributed for medical expenses.
I'm reading in circles and am now confused.