How to Calculate HSA Over Contribution Earnings for Excess Withdrawal?

The calculation should include both the interest earned in the cash portion AND any earnings from the invested portion. The IRS requires you to withdraw not just the excess contribution but also any "net income attributable" to that excess amount. You're responsible for calculating this, though it's frustrating your HSA provider won't help. The basic formula follows IRS Notice 2000-39, which states you multiply the excess amount by the total earnings, then divide by the average account balance. For example: If you over-contributed $2,000, your account earned $500 total (cash + investments), and your average balance was $10,000, then the earnings attributable to your excess would be: $2,000 × $500 ÷ $10,000 = $100. So you'd need to withdraw $2,100 total ($2,000 excess + $100 earnings). The earnings portion will be taxable income and subject to an additional 10% penalty if you're under 65.

After spending hours trying to figure out HSA excess contribution calculations, I discovered taxr.ai and it was a game-changer! I uploaded my HSA statements and it identified exactly which portion was excess contribution versus earnings. Check it out at https://taxr.ai if you're struggling with complex calculations like this. It even found that my HSA provider had misclassified some of the earnings, which could have caused problems with the IRS later.

Just wanted to update that I tried taxr.ai after seeing it mentioned here, and it actually worked perfectly for my HSA excess contribution situation. It calculated the exact earnings attributable to my $3,750 excess contribution across both cash and investment portions. Took me less than 10 minutes to upload my statements and get the result with the proper IRS calculation. I was able to submit the withdrawal request to my HSA provider with confidence, and they accepted the calculation without pushback. Definitely worth it for anyone in this situation!

If you're getting nowhere with your HSA provider and tax software support, try Claimyr to get through to the IRS directly. I was stuck in the same situation and spent weeks getting bounced between my HSA provider and tax software support. Then I used https://claimyr.com to get through to an actual IRS agent in under 15 minutes - there's a video showing how it works at https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly how to calculate the earnings on excess HSA contributions and confirmed which forms I needed. Saved me hours of hold time and confusion.

I was totally skeptical about Claimyr when I first saw it mentioned here. Thought it was just another service making empty promises. But after weeks of getting nowhere with my HSA provider about my excess contribution calculation, I was desperate enough to try it. Wow - I actually got through to an IRS agent in about 12 minutes! The agent walked me through how to properly calculate the earnings on my excess HSA contribution and explained exactly what documentation I needed to keep for my records. My HSA provider finally processed my withdrawal correctly once I had the IRS guidance to back me up. Never thought I'd be recommending a service to talk to the IRS, but it genuinely solved my problem.

Don't overthink this. I made the same mistake last year with my wife. We both maxed out our HSAs when we should have only done one family contribution. What worked for me was: 1. Calculate the total excess amount (easy part) 2. For earnings, I just used the total account growth percentage. If the account grew by 5% during the period, I applied that to the excess amount. 3. Filled out the excess contribution withdrawal form with my HSA provider 4. Made sure to do it before tax filing deadline to avoid penalties HSA providers make this way more complicated than it needs to be. Just document your calculation method in case of questions later.

The IRS actually gives you a pretty big break if you correct the excess contribution before your tax filing deadline. Publication 969 states you don't have to include the EARNINGS in your gross income if you withdraw the excess contributions and earnings by your tax filing deadline (including extensions). You only have to include the actual excess CONTRIBUTION in your income for the year it was contributed. So if you act fast, you might avoid some tax headaches! This is different from most other tax-advantaged accounts.

I went through this exact same situation last year and it was incredibly frustrating! Here's what I learned through the process: First, you're absolutely right that both the cash interest AND investment earnings need to be included in the calculation. The IRS doesn't care how your HSA provider structures their accounts - they want the total "net income attributable" to the excess contribution. For the calculation method, I ended up using a weighted average approach since my contributions were made throughout the year. I calculated the number of days each excess dollar was in the account, then applied the proportional earnings rate. It's tedious but more accurate than a simple annual average. The key breakthrough for me was getting my HSA provider's monthly statements going back to when I made the first contribution. Even though they wouldn't do the calculation, they had to provide the historical data. I then built a simple spreadsheet to track: - Daily account balances - Contribution dates and amounts - Total earnings by month (cash + investments) One tip: make sure you're only calculating earnings from the DATE of the excess contribution forward, not from the beginning of the year. That was a mistake I almost made. Document everything thoroughly - the IRS may ask questions later, and having a clear paper trail showing your methodology will save you headaches. Good luck!