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Anybody know what happens if you just ignore the excess contribution? My brother accidentally contributed $300 too much to his HSA last year and his tax guy told him it wasn't worth the paperwork to fix it lol.
Your brother's tax preparer gave terrible advice. Ignoring an excess HSA contribution means paying a 6% excise tax EVERY YEAR until the excess is removed or absorbed by unused contribution limits in future years. For $300, that's $18 per year. Plus, the IRS can assess penalties and interest if they discover the unreported excess contribution later. It's much cleaner to just report it properly using Form 5329 and pay the 6% for one year than to risk ongoing penalties or a future audit headache.
This is exactly the kind of HSA mess that catches so many people off guard! You're definitely not alone in this situation. Since you've already gotten the excess contribution back from your HSA provider, you're actually in better shape than many people who don't realize they have this problem until much later. A few additional points to consider beyond what others have mentioned: 1. Make sure you have documentation of when the excess contribution was made versus when it was withdrawn. The timing affects whether you owe the 6% excise tax for the full year or just part of it. 2. If your HSA provider sent you a 1099-SA for the excess contribution distribution, don't panic - this is normal and expected. You'll reconcile everything on Form 8889. 3. Consider setting up automatic contribution limits with your payroll department for next year to prevent this from happening again. Many people get tripped up by mid-year job changes or bonus payments that push them over the limit. The good news is that once you file correctly this year with Forms 8889 and 5329, you'll be completely squared away with the IRS. It's a pain to deal with, but it's a one-time fix rather than an ongoing problem.
This is such a comprehensive breakdown - thank you! I'm actually in a similar situation and the timing documentation point is really important. My HSA provider was pretty slow to process my excess withdrawal request, so I have clear records showing the contribution was made in January 2022 but the excess wasn't removed until March 2023. One question about the 1099-SA - should I be worried if I haven't received one yet? My HSA provider said they would send it but it's been a few weeks since the distribution. Is there a deadline they have to meet, or should I follow up with them directly? Also, the automatic contribution limits tip is gold. I definitely don't want to go through this headache again next year!
Don't forget that if you're married, having your spouse be an employee of the company (a real employee with actual duties) can open up some options. You could potentially provide health benefits to employees without running into the 2% shareholder limitations. This only works if your spouse isn't also a shareholder though.
Thanks, this is an interesting idea. My spouse does already help with some administrative tasks, but I haven't formally hired them. Would they need to be W-2 or could they be contracted? And what minimum hours would they need to work for this to be viable?
They would definitely need to be a legitimate W-2 employee with regular duties, regular pay, and appropriate documentation. Using a contractor arrangement wouldn't work for this purpose. There's no specific minimum hour requirement in the tax code, but the employment needs to be genuine and the compensation reasonable for the work performed. I'd recommend at least 15-20 hours weekly to establish a clear employment relationship. Make sure to document job duties, have a formal employment agreement, and maintain records of work performed. The IRS does scrutinize family employment situations, especially when benefits are involved, so you want everything to be properly documented and legitimate.
One thing I haven't seen mentioned yet is the importance of timing when implementing these strategies. If you're going to start having your S-Corp pay health insurance premiums directly, you need to make sure this is consistent throughout the entire tax year. You can't just start doing it partway through the year for the expenses you've already paid personally. Also, keep in mind that if you do switch to having the corporation pay premiums directly, you'll need to adjust your officer compensation accordingly since this will increase your W-2 wages. This might push you into a higher tax bracket, so run the numbers carefully. For those considering the spouse employment route, remember that you'll also need to factor in the additional payroll taxes and potential workers' compensation requirements depending on your state. Sometimes the administrative burden can outweigh the tax benefits, especially for smaller operations.
This isn't legal advice, but I'm a tax preparer and we see this question occasionally. The biological product vs service distinction is key here. The IRS has ruled in similar cases (like plasma donation) that selling biological materials is not self-employment. Look at PLR 8814010 and the Garber case for precedent. Those deal with plasma, but the principle applies to sperm donation too. To be safe, report the income on Schedule 1, Line 8 (Other Income) and include a brief description like "Biological materials donation - 1099-MISC." This clearly shows you're not trying to hide income but also aren't classifying it as self-employment.
Thanks for the specific references! That's super helpful. Just to clarify, I should write that exact description in the line on Schedule 1? And by doing this, I won't need to pay the 15.3% self-employment tax, right?
Yes, write a brief description like that in the line provided on Schedule 1. Being specific helps if there's ever a question. Correct - by reporting it as Other Income on Schedule 1, you'll only pay regular income tax on the amount, not the additional 15.3% self-employment tax that would apply if you filed Schedule C. The income still increases your tax liability, but without the extra SE tax burden.
Random question - but did they withhold any taxes from your payments? When I donated last year they didn't withhold anything and I got hit with a big tax bill because I didn't set aside money. Just a heads up to maybe make estimated tax payments if you continue donating.
They didn't withhold anything from my payments. Thanks for the warning - I definitely hadn't thought about setting aside money for taxes. Do you know approximately what percentage I should be saving from each payment to cover the taxes?
A rough rule of thumb is to set aside 25-30% of your 1099 income for taxes, but it depends on your total income and tax bracket. If you're in the 22% bracket, you'd pay 22% federal income tax plus any state taxes on that $4,200. Since it's "other income" and not self-employment (as discussed above), you won't owe the additional 15.3% SE tax, which saves you money. You can use Form 1040ES to calculate your estimated payments more precisely based on your expected total income for the year. The IRS also has a withholding calculator on their website that can help you figure out if you need to adjust your regular job's withholding or make quarterly payments.
Just got my refund yesterday after using SBTPG with TurboTax! My DDD was 3/28, SBTPG received it that morning, processed it by afternoon, and it hit my account this morning 3/29. The SBTPG portal updated in real-time showing when they received it from IRS and when they sent it to my bank. They took out exactly $39.99 for the TurboTax fee that I opted to pay from my refund. Everything was exactly as expected with no surprises or additional delays. Much smoother process than last year when I waited nearly a week after my DDD.
Thanks for sharing your recent experience! It's really helpful to have current data points like yours. The consistency you're seeing - DDD on 3/28, processed same day, received 3/29 - matches what I've been telling people to expect this tax season. The real-time portal updates are a huge improvement from past years when we were all just guessing about timing. For anyone reading this thread, Anita's experience is pretty typical of what I've seen with most filers this year. The key is that SBTPG has gotten much more efficient, but your bank's processing time is still the variable that can add an extra day or two. If you're planning around needing your refund money, I'd still recommend assuming 1-2 business days after your DDD rather than counting on same-day availability.
NebulaKnight
I received my first round of child tax credit payments last time without any issues. According to the official IRS newsroom (https://www.irs.gov/newsroom), they're planning to start payments in July, but they recommend ensuring your 2023 tax return is filed and processed before then. They're also planning to relaunch the Child Tax Credit Update Portal where you can check payment status, update direct deposit information, and make other changes as needed.
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Isabella Tucker
Welcome to the community! The July timeline is what most sources are indicating, but I'd recommend signing up for IRS email updates if you haven't already - they'll send notifications when the payment portal goes live and when the first payments are scheduled to go out. Since you mentioned being new to the US tax system, one thing to keep in mind is that the IRS typically processes these payments in batches, so even once they start in July, it might take a few weeks for everyone to receive their first payment. Make sure your direct deposit info is current on your most recent tax return to avoid any delays with paper checks.
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Ashley Simian
ā¢Thanks for the welcome and the helpful advice! I hadn't thought about signing up for IRS email updates - that's a great suggestion. The batch processing info is particularly useful since I was wondering if everyone would get payments on the same day. I'll definitely make sure my direct deposit information is up to date. As someone still learning the system, I really appreciate community members like you taking the time to explain these details that might not be obvious to newcomers.
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