Excess HSA Contribution

[Jesse]

My client set up a HSA at a local bank who either mis-advised him or he had misinformed them. Either way he has a $3,000 deductible w/ a copay after the deductible is met with a max out of pocket of $5,000. He thought he could could contribute up to $5,000, and he did contribute $4,175. So I told him to withdraw the excess contributions before 4/15/06.

The problem is he already spent the $4,175 on medical expenses and now has nothing left in his account. So now is there any way out of the 6% excise tax?

[taxmandan]

HSA withdrawal

Sounds to me like he already withdrew the excess contributions and can now adjust his taxable income by the correct amount of contributions. He just made the correction before you told him to.

[Jesse]

Well Daahhh

What was I thinking - I guess I wasn't! Thanks for the wake up call.

[Unregistered]

We all occasionally fall into the trap of making something more complicated than it needs to be.

[Idaho TaxLady]

We all occasionally fall into the trap of making something more complicated than it needs to be.

I have a very similar problem, except my client's HSA is via her employer and I'm not sure how to show the adjustment since the W-2 will, for example, show $4,000 was contributed when only $2650 was allowed. Client has removed excess, but it was too late for employer to make adjustments on employment payroll records, apparently.

I'm thinking 1040, line 21, other income. Any other thoughts?

[taxmandan]

Excess HSA

I'm thinking 1040, line 21, other income. Any other thoughts?

Were the contributions from the employer or the employee? This money should be subject to FICA as well as income tax.

[Idaho Tax Lady]

The contributions were by both employee and employer...$250 monthly out of employee's check, $1000 contributed by employer. Ah, I see your point. $250 x 12 = $3,000, only $350 (out of $2650 allowed) is actually excess that will affect W-2. Employer will not correct W-2 at this point.