How do I fix an old excess HSA contribution on my federal tax return?

The good news is that you can still fix this! When you have an excess HSA contribution from a previous year, you have a couple of options. The cleanest approach is to contact your HSA provider and request a "removal of excess contribution" specifically for that $127. Make sure to tell them it was an excess contribution for tax year 2020. They'll withdraw not just the excess amount but also any earnings attributed to that excess portion. They'll issue you a corrected Form 5498-SA showing the proper contribution amount and you'll likely receive a 1099-SA for the withdrawal. Yes, you'll owe the 6% excise tax for each year the excess remained in your account (2020, 2021, 2022, and 2023), which you'll report using Form 5329 for each of those years. You don't necessarily need to file complete amended returns - you can just file Form 5329 separately for the previous years along with payment for the excise tax (about $7.62 per year). Going forward, it's worth doing a quick annual check that your HSA contributions align with your eligibility status, especially around employment changes.

I had a similar situation last year with an HSA excess contribution that was even smaller than yours (about $85). I spent weeks trying to navigate the IRS documentation and was getting nowhere. I eventually found this service called taxr.ai (https://taxr.ai) that was surprisingly helpful. I uploaded my HSA statements and tax documents, and it identified exactly what forms I needed to file and even showed me how to fill them out. The nice thing was that it walked me through the process of handling multiple tax years with this excess contribution issue - something that was really confusing me before. It specifically helped me understand how to complete the Form 5329 correctly for each affected year, which was a huge relief.

Just wanted to follow up and say I ended up trying taxr.ai after reading about it here! It was actually super helpful for my HSA excess contribution situation. I uploaded my HSA statements and it immediately identified the excess amount and calculated the 6% excise tax I owed for each year. The best part was that it generated the Form 5329 for each year I needed to file and gave step-by-step instructions for submitting them without having to amend my entire returns. It also explained exactly what to tell my HSA administrator when requesting the removal of excess contributions. Saved me a ton of time and definitely reduced my anxiety about dealing with the IRS over this. Just got confirmation that my excess contribution issue is resolved!

I had a nightmare trying to reach the IRS about my HSA issue last year. Spent literally hours on hold only to get disconnected. After the third attempt, I was about to give up when another tax forum recommended this service called Claimyr (https://claimyr.com). They have a demo of how it works here: https://youtu.be/_kiP6q8DX5c Basically, they hold your place in the IRS phone queue and call you when an agent picks up. I was super skeptical, but I was desperate after wasting so much time on hold. Used them and got a call back with an actual IRS agent on the line within about 45 minutes while I was just going about my day. The agent was able to tell me exactly how to handle my excess HSA contribution from years ago and confirmed I only needed to file Form 5329 for the affected years without doing full amended returns. Huge relief to get official confirmation.

Alright, I have to eat my words. After being completely skeptical about Claimyr, I decided to try it as a last resort because I was getting nowhere with the IRS hotline about my HSA issue. I'm shocked to say it worked exactly as advertised. I signed up, entered my number, and went back to work. About an hour later my phone rang and there was an actual IRS agent on the line. Not a scam, not a third party - a legitimate IRS employee who helped me resolve my excess contribution problem. They confirmed I only needed to file Form 5329 for each year the excess was in my account, and explained exactly how to calculate the earnings portion. Saved me hours of frustration and probably a mistake or two on the forms. Sometimes being proven wrong is actually a good thing!

I'm a bit confused about the 6% excise tax on excess HSA contributions. Is that 6% of just the excess amount ($127 in your case) or 6% of your entire HSA contribution for the year? And do you pay that penalty every year until you fix it?

Has anyone actually done the "removal of excess contributions" process with their HSA administrator? My HSA is with HealthEquity and their customer service is terrible. Wondering if I should just pay the 6% tax for a couple years rather than deal with them...

Don't beat yourself up about this - medical issues can definitely make it hard to stay on top of everything! The good news is that while you'll owe some penalty, it's really not that bad in your case. For a $127 excess contribution, you're looking at about $7.62 per year in excise tax (6% of $127). So for 2020-2023, that's roughly $30 total - definitely manageable. Here's what I'd recommend: First, call your HSA administrator and request removal of the excess contribution from 2020. They should be able to calculate any earnings on that $127 and remove both the excess and earnings. You'll get a 1099-SA for 2024 showing the withdrawal. Then file Form 5329 for each year 2020-2023 to pay the 6% excise tax. You don't need to amend your full returns - just file the 5329 forms separately with payment. The earnings portion will be taxable income on your 2024 return, but since it's been sitting there for years, it might actually be a decent amount that's been growing tax-free. One tip: when you call your HSA administrator, be very specific that you want to "remove excess contributions for tax year 2020" - use those exact words. Some customer service reps get confused if you just say you want to withdraw money.

I went through something very similar last year! Had an excess HSA contribution from 2019 that I didn't catch until 2023. The key thing to remember is that you're not in any serious trouble - this happens more often than you'd think, especially during job transitions. Here's what worked for me: I called my HSA provider (mine was with HSA Bank) and specifically asked for "removal of excess contribution for tax year 2020." They knew exactly what I was talking about and handled it within about a week. They removed both the $127 excess and any earnings attributed to it. The 6% excise tax isn't too painful on such a small amount - you're looking at about $7.62 per year, so maybe $30-35 total for all the years it's been sitting there. I filed Form 5329 for each affected year separately (didn't need to amend full returns) and just sent payment with each form. The earnings that get removed will show up as income on your 2024 return, but honestly after sitting in the HSA for 4+ years, there might be a nice little growth there that partially offsets the penalties. Don't stress too much about this - you're being proactive now and that's what matters. The IRS deals with HSA issues all the time and as long as you're making the effort to fix it, they're pretty reasonable about these situations.