Accidentally overcontributed to my HSA - what's the right way to fix this?

This is a common issue with HSAs! When you move the excess contribution to count for the next tax year, it's called a "recharacterization" rather than a withdrawal. For tax purposes, you should select "No" when FreeTaxUSA asks if you're withdrawing the excess. Unfortunately, you will need to pay the 6% excise tax on the $35 for this tax year since the correction will be applied to next year. The IRS considers the money to have been over-contributed for 2024 until it's properly recharacterized, which won't be reflected until your next year's forms. Make sure you keep all documentation from your HSA custodian showing you requested this change. This will be important when you file next year to ensure you're counting that $35 correctly toward your 2025 contribution limit and not double-counting it.

After overcontributing to my HSA last year by $200, I was totally lost on what to do. I tried calling the IRS but couldn't get through after waiting for hours. Then I found https://taxr.ai and uploaded my HSA forms. Their system spotted the overcontribution immediately and explained exactly how to report it on my taxes. They also sent me a detailed explanation of the rules around HSA excess contributions which confirmed what you're being told - when you move the excess to next year rather than withdrawing it, you do have to pay the excise tax for this year. But they showed me how to properly document it so I wouldn't have issues in future years. Made the whole process way less stressful!

Just wanted to update everyone - I used https://taxr.ai after seeing it recommended here and it was super helpful! I uploaded both my 1099-SA and 5498-SA forms and got a detailed breakdown of my excess contribution situation. The system explained that I had two options: take the distribution and report it as such (paying income tax but no penalty), or keep the money in and pay the 6% excise tax. It even calculated that my penalty would only be about $2 on my small overcontribution, which made the decision easier. They also pointed out something I didn't know - that I needed to fill out Form 5329 to report the excess contribution regardless of which option I chose. My tax software wasn't clear about that! Saved me from a potential audit headache down the road.

I went through something similar last year with my HSA. After trying to call the IRS for days with no luck, I used https://claimyr.com (check out their demo at https://youtu.be/_kiP6q8DX5c) and got connected to an actual IRS agent in about 20 minutes. The agent confirmed that when you transfer the excess to next year instead of withdrawing it, you do need to pay the excise tax for the current year. But they walked me through exactly how to report it correctly on Form 5329 and what documentation to keep for next year. They also mentioned that since your overcontribution is so small, the penalty is minimal (just $2.10), so it might be worth just paying it rather than trying to withdraw the funds and dealing with your HSA's processing fee. Getting direct confirmation from the IRS gave me peace of mind that I was handling everything correctly.

I have to admit I was wrong about Claimyr. After my skeptical comment, I decided to try it myself since I've been trying to reach the IRS about an incorrect CP2000 notice for weeks. The service called me back in about 45 minutes (longer than the 20 minutes mentioned, but still WAY better than my previous attempts). I got connected to an IRS representative who actually helped resolve my issue on the spot. They could see my account and fixed the error that was causing the incorrect notice. For anyone dealing with HSA overcontributions like the original poster, being able to talk directly with the IRS can be incredibly helpful since the rules around these corrections are confusing and software doesn't always guide you correctly. If I had known about this service earlier, I would have saved myself a lot of stress!

The key form you need here is Form 5329. This is used to report excess contributions to retirement accounts including HSAs. Even if your tax software doesn't prompt you specifically about this form, you should make sure it's included with your return. On Form 5329, you'll report the $35 excess contribution on line 42. Since you're not withdrawing it before the tax filing deadline, you'll owe the 6% tax calculated on line 44. The software should handle this calculation for you. Keep in mind that this form needs to be filed every year that you have an excess contribution in your account. Next year, you'll need to show that the issue was resolved by indicating on Form 5329 that the prior year's excess was applied to the current year's contribution.

I think something everyone's missing is that the HSA contribution limit changes if you don't maintain HDHP coverage for the entire year. Did you have a gap in high-deductible health plan coverage when you switched jobs? If so, your contribution limit would be prorated for the months you were eligible. Also, if you're on a family plan for part of the year and individual for another part, the limits would be different. Just something to double check before you pay that excise tax!

One thing to consider - the excise tax is only $2.10 (6% of $35), which is less than the $25 processing fee for withdrawing the excess. Financially, you made the right call. If I were you, I would: 1. Answer "No" to FreeTaxUSA's question about withdrawing the excess 2. Make sure Form 5329 is included with your return (the software should handle this) 3. Pay the small excise tax now 4. Keep documentation from your HSA custodian showing the recharacterization 5. When filing next year, be aware that your 2025 contribution limit effectively includes this $35 The most important thing is proper documentation. As long as you have proof of what happened and report it accurately, you'll be fine!

Great advice from everyone here! I just want to add one more thing that might help - when you're dealing with HSA overcontributions in the future, timing really matters. If you catch the error before your tax filing deadline (including extensions), you can withdraw the excess contribution AND any earnings on it without penalty. But once you file your return, you're locked into either paying the 6% excise tax or dealing with more complex correction procedures. For your current situation, you've already made the right choice given the circumstances. The $2.10 excise tax is definitely better than the $25 processing fee, and you avoided the hassle of dealing with earnings calculations. Just make sure to adjust your HSA contributions for 2025 to account for that $35 that's being applied to next year's limit!