Put Too Much In Your HSA? Here’s The Fix Healthshare

Put Too Much In Your HSA? Here’s The Fix

mistakePutting too much money in your HSA can happen, but the IRS takes a dim view of doing it. In fact, you’ll be penalized for it unless you catch it and fix it. Here’s how to do that.

HSA Contributions Have Annual Limits

For 2016, you are only allowed to deposit $3,350 in your HSA for individual plans ($6,750 for family coverage). You can make an additional $1,000 contribution if you are 55 or older. You have until April 18, 2016 to fully fund your HSA. Deposits that exceed this limit can incur tax penalties and/or IRS fees. For 2017, individual contributions will increase by $50 from $3,350 to $3,400 while family contributions remain the same.

Excess Contribution Removal

To avoid penalties, you still have a chance to remove the excess funds by your tax filing deadline, typically April 15 (this year it was April 18). You have to complete the “Excess Contribution Removal Form” and mail it to your HSA administrator.

What Happens if the Excess Contribution Earned Money?

Even if you have corrected the excess contribution before the tax filing deadline without owing any tax penalties, if the excess contribution earned money while in the HSA, you will have to pay taxes on those earnings.  Since earnings are usually very small, it isn’t a huge tax issue for most HSA owners.  However, the IRS has its own method for calculating earnings so the result might be different than what you may expect.

The IRS imposes a six-percent tax penalty every year if the excess isn’t corrected by your tax-filing deadline.  If you don’t want to pay that six percent every year, correct it before April 18. Correct your excess contributions as soon as possible, and remember to account for deposits from employers or family members.

For example, if you are under age 55, you can only contribute a maximum of $3,350 to your HSA for 2016. If your employer places a $500 contribution in your HSA for 2016, you can only deposit up to $2,850 to not exceed the HSA annual limit.  If the combined deposits go over the limit, you must remove the excess as well as the earnings on the excess before April 17, 2017 to avoid a penalty. Understand more about your HSA and how it works here.

Wiley Long

Wiley Long

Wiley Long is President of HSA for America, and a passionate advocate for consumer-based solutions that will improve price transparency and lower health insurance and medical costs for people purchasing individual and family health insurance plans.
Wiley Long

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  • tim holt

    Wow, what great information! I bet that less than 10% of HSA clients know this fact!

  • Michelle Blackmore

    Hello ,
    This is Michelle. I recently had the opportunity to look through your website HSAforAmerica.com. You have quality & useful posts.I write for many financial communities. I would be highly privileged if you allow me to write for your website. The article will be completely free of charge and all I want is just a back link for my site.
    Thanks

  • Jim McFadden

    Hi Michelle,

    Thanks for the kind words. However, at this time, we prefer to create our own blog articles. If anything ever changes, I’ll reply to you here.

    Thanks,
    Jim

  • Jim Corn

    Good article that shows failure to keep accurate records of contribution can result in more taxes. This should be a warning to everyone with an HSA to keep track of all contributions (yours and others to your account) to make sure they don’t exceed what is allowed.

  • darla

    If I use my medical account for covered expenses, does this go towards my deductible for that year?

  • Wiley

    Hi Darla,

    Yes, if you take money out of your HSA to pay for expenses that would be covered under your policy had you met your deductible already, then generally speaking that money would go toward satisfying the deductible.

  • Kim

    We are self employed and usually contribute to an HSA once per year. In 2012, our HSA bank pulled the contribution twice at the end of the year. I corrected the excess contribution in early 2013 by filling out a form allowing them to pull the excess and small amount of money it made out of 2012 and transfer it to a contribution for 2013. The 5498-SA they sent still shows the double contribution even though I corrected it in February. How do I report all of this to the IRS? Is there a special form that I can use to detail the correction? Should my HSA provider have filed a corrected 5498-SA?

  • Wiley Long

    Hi Kim,

    If the HSA provider actually made the correction and moved the deposit to 2013, they should be able to provide a corrected 5498. Calling the administrator is the only option.

  • John

    I made HSA contributions betwen Jan 1 and April 15 several times the past few years but failed to notify my credit union of my intent that it be applied to the previous year. I received a letter from the IRS indicating that the 5498SA showed less than what I deducted on my tax forms. When I asked my credit union to send me a corrected 5498SA for several years back to reflect actual contributions, they said the IRS prohibits them from going back and correcting. Are they prohibited from going back and correcting the 5498SA?

  • Fred adams

    John,

    I apologize for our slow reply. AS you can imagine, our agency has been besieged with questions since open enrollment for reform began last week.

    According to the IRS, your administrator must “File Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA Information, with the IRS on or before June 2, for each person for whom you maintained an HSA, Archer MSA, or Medicare Advantage MSA (MA MSA). For HSA or Archer MSA contributions made between January 1, 2014, and April 15, 2014, you should obtain the participant’s designation of the year for which the contributions are made.”

    You should have been asked this question at the time of making your deposits. If you were not, then it would appear as though your credit union is not using proper format. If you were asked the question, and did not indicate at the time that your contribution was intended for the prior year, then an account administrator is allowed to, but is not required, to make an adjustment and send an amended 5498SA.

    If I were in this situation, I would refer to a copy of the deposit slips in question. If the error was yours, then they do not have to amend the 5498SA, but they are allowed to do so. However, you should note that this form is really intended for information purposes only, much like a year end bank statement. If you can show the IRS that your contributions were intended for the prior year, or that your credit union did not ask which tax year your deposits made between January 1 and April 15 should be applied to, then you will not have any problems. If neither of those apply, and the mistake was on your end, then I am afraid you may need to file an amended tax return. Should you need help in that area, I would recommend using the services of KKO Lawyers, who specialize in both tax planning and legal services. They can be found on our Additional Benefits page at http://www.hsaforamerica.com/member-benefits.htm .

    I hope this helps,

    Fred Adams

  • Marty

    It looks like I made an excess contribution to your HSA and corrected it using the excess contribution form. However, my contributions were made through my employer payroll, and my W2 still lists the incorrect amount as contributed to the HSA. Do I need to request a corrected W2, or can I just put in the actual contributed amount for 2013?

  • Wiley Long

    Hi Marty,

    A corrected Form W-2 should be obtained due to comprehensive Internal Revenue Service matching programs where the agency reviews Forms W-2 and 5498-SA for inconsistencies. In hindsight, you probably should have coordinated the excess HSA correction with your employer’s HR department to ensure that the correction was also appropriately adjusted by the payroll department rather than working directly with HSA fiduciary. I would suggest you now immediately schedule a meeting with the HR department to discuss the pending required correction to your W-2 and to notify the HR Department that appropriate payroll threshold “gatekeeping” may not be taking place since an excess contribution was allowed to occur.

  • Adam

    My wife and I are both eligible for HSAs through our work. We had a baby in February of 2013, so since now that my wife had a family plan, and I had a single plan, we thought her maximum contribution was 6,450 and mine was 3,250 (Total of 9,700). As of last night, we found out we were wrong. The total is 6,450.

    Last year, to make deducting medical expenses easier, we made out of pocket contributions (post taxed) to our HSAs, and planned on paying medical bills with that. My wife made a total out of pocket contribution of $4010 and I made a contribution of $850. Since we added the additional out of pocket, we went over our maximum contribution by $2,910.

    My questions for you is; since $4,860 was a post-tax contribution, can we get away with just deducting $2,910 less? My accountant thinks that I need to fill out an excess contribution removal form, and remove $2,910 from the account. Since the money was spent on medical expenses last year, he said that I need to make a 2014 contribution, so that the money is in the account. Then we would have to remove it as a 2013 excess contribution. That would then bring my 2014 contribution down by $2,910, and I really don’t like that idea.

    What do you suggest? I really hate to miss out on the over $700 in tax benefit in 2014. I feel like I am getting double dipped.

    Thanks,

  • Wiley Long

    Hi Adam,

    Yes, your accountant is correct here. You do need to remove the $2910 from the account as a 2013 contribution, because in addition to the immediate tax issue, the money in an HSA grows tax-deferred. The IRS will unfortunately not allow you to put excess funds there, even if you don’t take the tax deduction. (We believe that HSA contribution should be MUCH higher, by the way). But you can put it right back in as a 2014 contribution, as long as you don’t exceed the 2014 contribution limit of $6550.

    Best,

    Wiley

  • Eric

    A number of years ago, we contributed $2,058 too much to our HSA. Every year since, we have paid an additional tax of $123 (6%) on our tax return. Is there any way to correct an excess contribution from a period prior to the most recent tax year? Thanks!

  • Wiley Long

    Eric – great question, and the answer is yes. You have two options, (1) Simply complete the excess contribution form to withdrawal the excess contribution and any earnings made from that contribution, or (2) Deduct the excess contribution and earnings amount from this year’s maximum contribution limit and only fund that amount for this year. Remember, any contributions made after January 1 of this year can be delayed and claimed on next year’s return.

  • Faye

    My HSA bank never notified or sent me these forms. I stumbled upon them when looking at my HSA account online the other day. I always do electronic transfer contributions from my credit union to this bank and not in person with a deposit slip in hand. I had no idea I had to designate a year or that form 5498-SA existed. Should they have asked me for what year I wanted it to be applied? They are a ‘paperless’ site unless you want to pay a $3 monthly fee. They never sent me an email that 5498-SA and 1099-SA were available to view. Needless to say the 2012 form 5498-SA only shows the contributions made in that year (Box 2) and -0- for 2013 contributions to be applied in 2012 (Box 3). I deducted an additional $1000 which I contributed in the first 3 months of 2013 on my 2012 taxes. I called a HSA bank representative today and she was unsure of what they could do. Can I demand they do an amended 1598-SA for 2012? Is this a common issue with banks that are running HSA accounts? Can I switch to another bank that handles HSA’s or would that make matters worse? Thanks!

  • Wiley Long

    Faye,

    Yes, you can always move your HSA to any bank you want. This may be prudent if you are having difficulties with your current administrator. Just inform them to transfer the funds to the new account.

    You should have received form 5498 in May. The bank can file a corrected form 5498, if they have mis-categorized a contribution to the wrong year. I would suggest you contact them, and request this correction.

  • Shane

    Hi Wiley, thanks for this article. I’ve been wrestling with how to report this scenario to the IRS and have a difficult time understanding the IRS instructions, and was hoping this would be a forum to get this information out somewhere on the web. Everything I can find is somewhat vague. The scenario: I contributed $1400 to an HSA in 11-2013 when I wasn’t eligible. Because of this I processed an excess contribution removal for that $1400 on 2-2014, plus $2 more for interest.

    So I’m trying to figure out how to report this on my taxes – form 8889 for 2013. It’s a simple question of how do I report this reversal on my taxes – but I can’t find clarity anywhere on how to do this. Is an excess contribution reversal reported in 2013, or will it only resolve w/ my 2014 taxes? I hope the question makes sense.

    For form 8889: Box 2 is 1400. Do I put anything about the $1400 reversal in box 14a and/or 14b for the year 2013 tax return? Or will I only show the reversal on my 2014 return?

    All the instructions seem to be non-specific about the year. It seems like there’s some info from a few HSA providers saying I’ll get a 1099-SA in 2014 making me think to save the reporting until then.

    I can’t figure out if I put $1400 in boxes 14a and 14b of my 2013 return, or if these instructions don’t apply since there’s no 2013 1099-SA for this transaction, and box 14b instructions seem to refer to box 14a amounts.

    The IRS instructions say this:

    “Part II—HSA Distributions
    Line 14a
    Enter the total distributions you received in 2013 from all HSAs. Your total distributions include amounts paid with a debit card that restricts payments to health care and amounts withdrawn by other individuals that you have designated. These amounts should be shown in box 1 of Form 1099-SA.

    Line 14b
    Include on line 14b any distributions you received in 2013 that qualified as a rollover contribution to another HSA. See Rollovers, earlier. Also include any excess contributions (and the earnings on those excess contributions) included on line 14a that were withdrawn by the due date, including extensions, of your return. See the instructions for line 13, earlier.”

    I greatly appreciate any input on this matter – especially if my 2013 form 8889 boxes 14a and 14b should have $1400 in them, or if they should be $0 – and then wait until 2014 to report the reversal in boxes 14a and 14b. Thank you so much if you can provide some clarity on this actual nuts and bolts of how to report an HSA excess contribution reversal. It is most appreciated.

  • Shane

    followup on above: I chatted w/ HR Block and they said in the situation outlined above (reversing 2013 HSA excess contribution on 2-2014) they said I would have 0 in all fields on my form 8889. line 2 on form 8889 (HSA contributions) would be 0 also as if no contribution ever occurred. 14a and 14b would be 0 also.

    I’m not sure this jives with the instruction on other forms and am probably going to call IRS directly as none of it makes sense to me given all the information about putting data in certain fields for excess distributions, but I wanted to post this anyhow just in case.

  • Wiley Long

    Shane, yes, your consultation with H&R block was correct, as I understand things (please note that I do NOT provide accounting advice). Since your withdrawal of the excess was prior to April 15th, you can rightly say that no contribution occurred. You put money in, but you took it back out before the contribution deadline for the year.

  • Gaco Le

    I had 100 dollar of excess contribution from my employer (it is pre tax). So I think i have to pay tax for the amount.
    I withdrew the excess amount via my HSA bank to avoid the penalty fee.
    1/what do i put in line 21 for “list type” ?
    2/it seems like i dont have to pay SS and medicare tax for this $100. does this make sense?
    thank you

  • Wiley Long

    Hi Gaco Le,

    I’m not sure what form you are referring to re line 21.
    No, if that $100 was an excess contribution that you had to withdraw, you are not absolved these taxes.

  • Katie

    Thanks for this article. I have a difficult situation, do you know how I should handle it?
    In 2012, my employer contributed money (pre-tax) to my HSA. I left that job in February and left that health insurance plan, making me ineligible to contribute much to my HSA. When completing my 2012 taxes (in the spring of 2013), I determined that the excess contribution was $1079. I figured it wasn’t worth my time to figure out which portion of the earnings that year was due to the $1079, so I just attributed all the earnings to it (a total of $1.73!) so the total excess that I needed to withdraw was $1081.
    Unfortunately, I had already been withdrawing money throughout 2012 to reimburse myself for medical expenses, so by the time I realized I had an excess contribution, there was only $638 left in my account. So I needed to withdraw the $638 as an excess contribution, as well as re-characterize $443 of my prior distributions in 2012 as being withdrawals of excess, rather than normal distributions. I called my HSA bank to tell them this, and they wanted me to fax forms and send them fees and such. I then asked the IRS how to handle it, and they told me to just withdraw the $638, report the $1081 as “other income” so I would pay taxes on it, and not to worry about the HSA paperwork from the bank being inaccurate. (i.e., my 2012 1099-SA showed a bunch of normal distributions, but some of them were actually withdrawals of excess contributions. The IRS said that didn’t matter).
    I did what the IRS said. So last year I paid taxes on the excess $1081 on my 2012 return. The problem is that now, my HSA bank has sent me a 1099-SA for 2013, showing distributions of $638 and it is coded as a normal distribution, not withdrawal of an excess. Since I didn’t use this money to pay medical expenses, I’m not sure how to handle this in my tax preparation. If I enter the 1099-SA info into my tax program as it was reported, and say I didn’t use it for medical expenses, I’ll have to pay the 20% extra tax on it. But if I change the distribution code to show it was a withdrawal of an excess contribution, I’m afraid the IRS will detect that the information I put in does not match the 1099-SA that was provided to them, and they will start an audit or something. What should I do?

  • Wiley Long

    Hi Katie,

    Well now, this is a fun one. As I’ve stated before I am not a tax advisor, so I cannot tell you “what you should do”. And frankly, I’m not exactly sure. I wonder if you can contact your bank, tell them that they made an error in their 1099-SA, and have them re-issue that? Sorry to say, but I’m afraid you may have to deal with their forms and fees, as the only way to straighten this out.

  • Kristin

    I opened an HSA account in March 2012 & made a $3K (family) contribution designated for 2011.
    The following year, 2013, I went on-line & made a $4K contribution. Apparently the on-line format was different than when I initially opened the account & by default, designated the funds for 2013 even though my goal was to have designate those funds for 2012.
    My CPA did my 2012 taxes for designating the $4K for 2012.

    This year, 2014, I went on-line to make a $5K contribution but it wouldn’t allow me to designate for 2013 since it would exceed the maximum allowance for 2013 ($4K+$5K). When I called, this is when I learned the 2013 funds were applied to 2013 instead of the intended 2012.

    I spoke to 2 Bank HSA managers & they said when I contributed on-line in 2013, it didn’t give me an option to designate the $4,000 contribution to 2012 so it automatically went to 2013 & it is past the 12/31/13 deadline to correct any direction of contributions.

    They said there is nothing they can do on their end, so how do I correct this?

  • Wiley Long

    Hi Kristin,

    The bank should be willing to correct the contribution and send a corrected tax form. In this case the 12/31/13 deadline must be their own internal deadline for making contribution corrections. My suggestion is you contact them again, and raise the intensity of your request

  • Kristin

    Thank you Wiley! I contacted a 3rd manager & they told me again they only have until the end of the year to correct “designation” of funds… perhaps a contribution amount can be corrected until the following tax deadline (April 15). Since my taxes were filed last year with my $4K contribution designated for 2012 & the HSA bank designated for 2013 instead, do you know how I correct this? My CPA advised as you did but the HSA bank told me there is nothing they can do. It would seem I should be able to do something here? Thank you!

  • Whitney Johnson HSA Resources

    I agree with Wiley Long’s answer and would push even harder to get the bank to change the 5498-SA showing the contribution was made for 2012. If you can accomplish this it makes your tax situation much better. This change is not that difficult for the bank and you could offer to pay a servicing fee as there will be some work and expense on the bank’s part. The difficultly of the work, however, is unlikely to be the reason the bank has dug in regarding refusing to make the change. According to the law on being a custodian, the custodian must properly report HSA contributions and distributions – this accounting is really the most important function of a custodian. A custodian is not allowed to change years for contributions without jeopardizing its function as a custodian unless it has a good reason to do so. A bank made mistake is a good reason to do so. In this case, the bank likely has a clear policy (no doubt posted somewhere) that designated your contribution as for 2013, not 2012. Accordingly, it cannot change the year now because it properly reported it to begin with.

    If the bank will not change the 5498-SA, then you will be required to work with your CPA and amend your 2012 taxes. You took a deduction for an HSA contribution you never made. This is not a mistake you can let sit as the IRS will catch it once it matches your tax return with the bank’s 5498-SA for 2012. You will lose the 2012 tax deduction (so you will owe some more taxes for 2012 and will have to pay that plus interest and maybe a penalty) and you can use that HSA contribution for 2013 (as the bank already recorded).

    The excess contribution rules do not apply to any of this so you do not have any 6% penalty or “correct by the tax due date” issues. The bank stopped the excess from occurring in 2013, which was helpful as it caught all of this before it got worse.

  • Wiley Long

    Thanks Whitney. Many of our clients have their accounts with HSA Resources, by the way.

  • Chris

    I have a question regarding my HSA. I started having a HDHP plan in 2013 and maxed out my individual contribution to the HSA last year. My wife was covered by her own plan (non-HDHP), but didn’t contribute to any HSA. This year was the same, and my company contributed to HSA $600 at the begininng of the year. Since then, I quit and started at a new company where I also enrolled in the HDHP plan, and they too put in $600. I did make sure to calculate what my new “maximum” weekly allowance was since I now had $1200 put in by my companies that year. So far, so good.

    However, now my wife has left her job and started at a place that has much better insurance. For less than I am paying for individual, she can get family coverage which we plan on doing (I will ditch mine through her life event change). The trick is her plan is not HDHP. I am pretty sure the excess contribution form is the correct way of getting back my contribution for this year (I think I can keep last years contributions there since I had a HDHP last year), but I am not sure what to do about the money the company put there. Is this treated seperately? Since that amount never went “through” my paycheck, I never paid any other taxes like FICA and medicare on it. Any help would be appreciated.

    Thanks in advance.

  • Wiley Long

    Chris, yes you will have to withdraw the 2014 contributions. You are correct that you have not yet paid taxes on the money the company contributed, so you will have to declare that as income when you file your 2014 taxes.