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Spotlight Series: How to Fix Excess Health Savings Account Contributions

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Benefits Consultants
Lumity, Inc.

When you have a Health Savings Account (HSA) and you know that for 2016 you can only contribute a maximum of $3,550 and $6,650 for individual and family coverage respectively, somewhere along the way it's possible that you contributed more than the maximums for a variety of reasons. When this happen, what do you do about it?

You might think you can simply leave the money in your account and the IRS will tax you and you’d only be half right. You will have to pay income tax on the excess as well as a 6% excise (see: punishment) tax on the remaining contribution dollars and any interest earned -- and the IRS will keep taxing you the excise amount each year the excess remains in your HSA.

Before you file taxes

  • Remove the excess and interest from your HSA by your tax filing deadline (typically April 15).
  • Fill out an Excess Contribution Removal Form which you receive and return to your account administrator. (Sample here)
  • Don’t claim an exclusion from your income for the amount you removed.

If you filed before noticing the excess

  • If you filed earlier than April 15 and find yourself with excess, you can still remove it no later than six months after the due date of your tax return (including extensions that might have been granted).
  • File an amended return with “Filed pursuant to section 301.9100-2” written at the top.
  • Make any necessary changes with amended HSA forms that reflect the removal of your excess and the interest.

If you filed and already reported excess contributions

  • You may still be able to remove the excess and amend your tax return if you’ve been charged an excise tax because you were unaware of how to avoid it.
  • File an amended return with “Filed pursuant to section 301.9100-2” written at the top no later than six months after the due date of your tax return.
  • Make any necessary changes with amended HSA forms that reflect the removal of your excess and the interest. (Turbo tax and other tax software will automatically make adjustments a recalculate your income taxes less the excise)

The penalty is a steep price to pay and one that negates the benefits of HSAs. Keeping track of payroll deductions and personal contributions is essential even if your HSA is managed by an administrator. Come tax day, you will be the one paying for any mistakes, not your account custodian or your employer.

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