Excess contribution to HSA

[poncho_mike]

My wife went on Medicare in Fe 2024.  She she had an employer health insurance plan and HSA prior to Medicare.   She stopped her HSA contributions in early January, but her employer didn't stop contributions until the first of March.  She over-contributed by about $600.

I thought she has until April 15, 2025 to correct the issue.  We called the HSA holder, they said to contact the employer.  We contacted the employer, they are telling us it is too late to reverse the transaction.  I thought all the employer had to do was withdraw the money, issue her a check, and update her W2.

How do I handle this when the employer is not willing to help us?

[DianeW777]

The excess can be withdrawn as long as it is before April 15th. Contact the plan administrator and remove the excess.

• If you contributed too much or weren't eligible to contribute to your HSA in 2024, you'll need to withdraw the excess amount by April 15, 2025 to avoid a penalty (October 15 if you filed an extension).
• Review the information in the article below and enter information in your tax return to be sure of the excess amount before you withdraw. You have time to do it before the filing deadline. 
  • Why am I showing an excess HSA contribution? - You already know why, the article will provide more answers.

[poncho_mike]

Who is considered the "Plan Administrator"?   The company who has the HSA is telling me the HR Department of my wife's employer needs to do this.

I didn't realize until after I posted that this was for Education.  Sorry.

[KrisD15]

The plan administrator would be the bank or financial institution that issues your 1099-SA. 

[poncho_mike]

@KrisD15   I'm still not clear on how I handle this.   My wife and her employer contributed $1002 to her HSA.  She can contribute a max of $429 to her HSA.  I need to go to the Plan Adminstrator and ask what?  For a plan distribution?  The $573 difference is pre-tax money, and needs to be withdrawn.  Will this result in a 1099 of some sort showing the distribution?

I'm not sure how the mechanism for reporting the $572 which will now be taxable income to us.

Please explain.

[Opus 17]

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@poncho_mike wrote:

@KrisD15   I'm still not clear on how I handle this.   My wife and her employer contributed $1002 to her HSA.  She can contribute a max of $429 to her HSA.  I need to go to the Plan Adminstrator and ask what?  For a plan distribution?  The $573 difference is pre-tax money, and needs to be withdrawn.  Will this result in a 1099 of some sort showing the distribution?

I'm not sure how the mechanism for reporting the $572 which will now be taxable income to us.

Please explain.

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You ask the HSA bank for a "return of excess contribution."  This is not a regular withdrawal, it may require a special form to be filled out and faxed to them.  But the HSA bank must know the procedure and do it all the time, if you got someone on the phone who doesn't know about it, ask for their supervisor.  (Or, the form might also be on their website.)

The $573 is taxable because it is an excess contribution, not because it is returned. (It would be taxable even if you did not ask for a return, but you would also pay a penalty if you don't have the excess returned.). Turbotax has already applied the excess contribution to your taxable income.

The bank must also return any interest or investment income that is attributable to the excess contribution.  How much depends on the interest rate.  This attributed income is taxable on your 2024 return even though it is actually paid in 2025.  Report it as bank interest not on a 1099-INT.  (For example, if the excess is $572 and they return $580, you have $8 of taxable interest to report.)