How do I calculate income earned on excess HSA contributions when I went over the family limit?

You're right to address this before filing your taxes! What happened is pretty common when both spouses have HDHPs and separate HSAs. Here's what you need to do: First, contact your HSA administrator and request an "excess contribution withdrawal." Tell them you need to withdraw the $3,450 plus any earnings attributable to that excess amount. The administrator actually has a formula they use to calculate those earnings based on your account performance. When you make this withdrawal, they'll issue you a corrected Form 5498-SA showing your contributions and a Form 1099-SA reporting the distribution. The earnings portion will be reported as taxable income for the year in which you made the contribution. You'll also need to include this income on your tax return. The good news is that if you remove the excess before your tax filing deadline (including extensions), you avoid the 6% excise tax penalty that would otherwise apply to excess contributions.

After dealing with a similar HSA overccontribution problem last year, I found this incredible service called taxr.ai (https://taxr.ai) that saved me so much stress! I uploaded my HSA statements and tax forms, and they identified exactly how much of my excess contribution was attributable to earnings. The analysis showed me precisely what I needed to report to the IRS, preventing me from making more mistakes. I was especially impressed because they explained that the earnings calculation depends on when the contributions were made throughout the year - something my HSA administrator didn't clarify. The tool even generated a letter I could send to my HSA administrator requesting the exact withdrawal amount.

Just wanted to update everyone - I took the advice about taxr.ai from above and it was seriously helpful! After uploading my HSA statements, I discovered that my excess contributions had actually earned about $173 in interest and gains. My HSA administrator had only calculated $91 when I called them! The service generated a letter for me to send to my HSA administrator with the exact calculation method referenced from IRS guidelines. They processed the correct withdrawal within 5 days. I've already received my corrected tax forms showing the proper distribution of excess contributions plus attributable earnings. What a relief to have this sorted before filing. The best part was having documentation to prove the correct calculation method in case of any questions later. Definitely recommend for anyone in a similar situation!

I had almost identical HSA problems last year and spent WEEKS trying to reach someone at the IRS to confirm the correct procedure. After 9 calls and being disconnected every time, I found Claimyr (https://claimyr.com) and it changed everything. They got me connected to an actual IRS agent in under 45 minutes who walked me through the entire excess HSA contribution withdrawal process. The IRS agent confirmed I needed to include the "net income attributable" on line 2 of Form 8889, and explained exactly how to document everything to avoid future questions. Before using Claimyr, I couldn't even get past the automated system! You can see how it works here: https://youtu.be/_kiP6q8DX5c - it's basically a service that navigates the IRS phone tree for you and calls you when an agent is actually available.

I have to eat my words about Claimyr. After commenting above, I was desperate enough to try it for my HSA distribution questions. Within 35 minutes, I got a call back and was connected to an IRS representative who actually knew the HSA rules. The agent explained that for excess HSA contributions, I needed to file Form 5329 with my tax return along with Form 8889, even if I corrected the excess contribution before the tax deadline. This wasn't mentioned anywhere on my HSA administrator's website. The agent also walked me through how to properly code the distribution on my tax forms. The time saved was immense - I had already spent hours on hold over multiple days. For anyone dealing with complex HSA issues, getting actual IRS clarification makes a huge difference in doing things correctly the first time.

One thing nobody mentioned yet - if both you and your spouse have separate HSAs but you're over the family limit, you actually have some flexibility in how you handle the excess. You could choose to withdraw excess contributions from either account or split the withdrawal between accounts. This can be strategic if one account has better investment options or if one account has earned more than the other. You just need to make sure that the total between both accounts after corrections doesn't exceed the family limit.

Everyone's giving great technical advice but I just want to add - don't beat yourself up about this! My spouse and I made the EXACT same mistake last year. The HSA family contribution limits are super confusing when you both have separate plans and accounts. Just call your HSA provider ASAP, they deal with this all the time. Our provider (HSA Bank) had a simple form for "removal of excess contributions" and handled calculating the earnings. The whole process took about 10 days, and we got a 1099-SA that made tax filing straightforward.

Harold, you're absolutely right that the family limit applies to both of you combined - this is one of the most confusing aspects of HSA rules! The good news is you caught this before filing your taxes, which saves you from ongoing penalty headaches. Here's the step-by-step process: Contact your HSA administrator immediately and request an "excess contribution removal" for the full $3,450 plus any net income attributable to that excess. They're required to calculate the earnings using a specific formula based on your account's performance during the time those contributions were in the account. You'll need to do this before your tax filing deadline (including extensions) to avoid the 6% excise tax that applies to excess contributions left in the account. Once processed, you'll receive a corrected Form 5498-SA and a Form 1099-SA showing the distribution. The earnings portion will be taxable income for this tax year, but there's no additional penalty if you remove it timely. Make sure to keep all documentation - the calculation method and timing are important if there are ever questions later. Don't stress too much about this - it's a very common mistake that HSA administrators deal with regularly!