Taxpayer and spouse both contributed to work pretax HSA that exceed the limit by $1021. If they withdraw the excess by the due date of the return what year does the 1021 withdraw get taxed 2024 or 2025 when the withdraw took place.
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If it was from a W2, the excess is taxed on 2024 return. 2025 pay have a couple $$ of earnings that will be taxed. -
Thanks that is what I thought but when I read pub was not real clear. Yes contributions were from both w2s and exceeded the limit by 1021.Comment
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I have had to endure a couple of similar scenarios. Fortunately good tax software straightens it out.
There is an excess contribution that shows up on 2024 tax returns. You should have Form 1099-SA (if any) and/or Form 5498-SA for 2024 in hand when you prepare the tax return. Until the excess funds are removed (in 2025?) there will continue to be a penalty for the prior excess contributions, as well as for the 2025 corrective withdrawals via Form 1099-SA.
To make matters worse, many employees don't have a clear understanding of "Code W" stuff on their W2 and/or what responsibilities they have to control funding / withdrawals.
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As long as the excess is removed by due date, there is not a penalty.Originally posted by FEDUKE404 View Post
If the contribution was from W2, it is taxable as the Box 1 W2 showed the reduction of taxable wages for full amount.
If TP made excess contribution on their own, it's not taxable because the excess would not be allowed as a deduction.
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I guess I got excess donations (Form 5498-SA) and "qualifying distributions" (Form 1099-SA) confused.Originally posted by kathyc2 View Post
Recent client who had this issue "repaired" things around Nov 1st. But not really.
It happens. . .both in April and with increasing age.
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