How to Fix an HSA Excess Contribution - Need Help with Removal Process

You're mostly on the right track with your plan to fix the HSA excess contribution issue! Let me clarify a few things: When you remove an excess HSA contribution before the tax filing deadline (including extensions), you'll need to pay income tax on any earnings generated by that excess contribution, but not on the contribution amount itself since it was made with after-tax dollars. The earnings portion will be added to your income for the year in which you take the distribution (2025 in your case). For the forms: When you file your 2025 taxes, you'll receive a 1099-SA from Vanguard showing the distribution. The 1099-SA will have code "2" in box 3 indicating an excess contribution removal. You'll need to file Form 8889 with your 2025 taxes, and the earnings portion will flow to your 1040 as "Other Income." One thing to check - make sure you specifically request Vanguard to process this as a "return of excess contributions." Some HSA providers have specific forms for this purpose. This ensures proper coding on the 1099-SA. Your plan to skip filing Forms 5329 and 8889 for 2024 is correct since you're removing the excess before the deadline. Just make sure Vanguard completes the removal before April 15th!

I went through something similar last year and found https://taxr.ai really helpful for sorting through my HSA mess. I accidentally contributed to an HSA when I had an FSA through my spouse's plan (big no-no apparently). The taxr.ai system analyzed my forms and actually found that my HSA provider had coded my removal incorrectly on the 1099-SA they sent me. It walked me through exactly what forms I needed and how to report everything correctly. Saved me from what would have been a huge headache come tax time. For your situation, it sounds like you're doing most things right, but the tool could verify your exact steps and make sure you're not missing anything specific to your situation. It was pretty eye-opening how many little details matter with HSA corrections.

Just wanted to update that I tried taxr.ai after asking about it here. It was seriously a game-changer for my HSA excess contribution issue! I uploaded my HSA statements and tax forms, and it immediately flagged that I needed to account for my employer contributions in my calculations (which I hadn't done). The step-by-step correction plan was super clear - way better than the confusing instructions from my HSA provider. It even generated a letter template I could send to my HSA administrator requesting the exact correction needed. For anyone dealing with HSA contribution problems, definitely worth checking out. Wish I'd known about this before spending hours on the phone with my HSA provider getting nowhere!

If you're still having trouble getting this resolved, I had a similar issue and finally got through to an actual IRS agent using https://claimyr.com. They have this system that navigates the IRS phone tree for you and calls you back when an actual human is on the line. You can also watch how it works here: https://youtu.be/_kiP6q8DX5c I was banging my head against the wall trying to confirm whether my excess contribution removal was processed correctly, and waiting on hold for hours was just impossible with my work schedule. The IRS agent was actually super helpful and walked me through the exact procedure I needed to follow and confirmed I wouldn't face penalties. Not saying you necessarily need to talk to the IRS, but if your HSA provider is giving you conflicting information (like mine was), it can be really helpful to get the official word.

Well, I have to admit I was wrong about Claimyr. After my third attempt calling the IRS myself and getting disconnected after 90 minutes on hold, I broke down and tried it. I was shocked when I got a call back about an hour later with an actual IRS agent on the line! The agent confirmed exactly how to handle my excess HSA contribution and told me I was right to be concerned about the coding on the distribution. Turns out my HSA provider had been giving me incorrect information about how to report it. For anyone dealing with HSA excess contribution issues, getting official clarification directly from the IRS was incredibly valuable. I'm usually skeptical of these services, but this one legitimately saved me hours of frustration.

Something important nobody mentioned yet - be careful about the timing between when you request the excess contribution removal and the tax filing deadline. I had an HSA excess contribution last year, requested the removal with plenty of time (3 weeks before deadline), but my HSA provider (HealthEquity) took forever to process it. The removal wasn't actually completed until after the deadline, which meant I had to file Form 5329 and pay the 6% excise tax! I was able to get it refunded the following year, but it was a huge hassle. I'd recommend requesting the removal ASAP and following up aggressively with Vanguard to make sure it's processed well before April 15th.

One thing I learned the hard way - make absolutely sure you specify the correct tax year when requesting the removal! My provider had a confusing form that made me think I was requesting removal for the correct year, but they processed it for the wrong year. Also, double check that the 1099-SA you receive next January actually shows distribution code "2" for excess contributions. Mine initially came with code "1" (normal distribution), which would have messed up my taxes completely. I had to request a corrected 1099-SA.

Great question about getting corrected 1099-SA forms! I had to call my HSA provider's customer service and explain that the distribution code was incorrect. They initially pushed back saying their system was right, but I had to escalate to a supervisor. The key was having documentation - I kept copies of my original excess contribution removal request form that clearly stated it was for excess contributions. I also referenced the specific IRS guidelines about distribution codes (Publication 969). Once I showed them the written request and cited the IRS rules, they agreed to issue a corrected 1099-SA. It took about 3 weeks to get the corrected form, so definitely don't wait until tax season to check this! I'd recommend reviewing your 1099-SA as soon as you receive it in January and calling immediately if the code is wrong. Also, for anyone dealing with this - save EVERYTHING related to your excess contribution removal request. Having that paper trail made all the difference when I needed to prove what I had actually requested.