How to calculate earnings on excess HSA contributions if I kept them in cash - not invested

This is a good question about excess HSA contributions! The IRS does require you to remove both the excess contribution AND any earnings attributable to it. Since your excess contribution of $1,650 was kept in cash and not invested, you can indeed use the simple method of calculating the earnings based on the cash interest rate of 0.01%. This would be much simpler than using the complex formula. The formula you mentioned is more relevant when the excess funds are commingled with other investments. For example, with $1,650 at 0.01% interest for a year, your earnings would be approximately $0.17 (and that's being generous with rounding). This is the amount you'd include along with returning the $1,650 excess contribution. Just make sure you complete Form 8889 correctly to report this correction, and file Form 5329 to report any applicable excise tax if you didn't correct the excess contribution before the tax filing deadline.

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Has anyone successfully removed their excess HSA contributions? My provider is giving me a headache about it. They keep saying I need to fill out their special form, but then they're telling me they can't process it because the tax year has closed. I'm so confused!

Quick question - does anyone know if the 6% excise tax on excess contributions continues to apply each year until you withdraw the excess? I just discovered I've had an excess HSA contribution sitting there for 2 years!

I went through this exact same situation last year with a $2,000 HSA overcontribution that I kept in cash. The IRS guidance is actually pretty clear on this - you only need to calculate earnings on what the excess contribution actually earned, not use the complex formula when the funds were segregated. Since your $1,650 was sitting in cash at 0.01%, your earnings calculation is straightforward: $1,650 × 0.0001 = about $0.17 for the year (assuming it was there the full year). That's the amount you'd need to withdraw along with the $1,650 excess. The complex formula everyone mentions is only required when excess contributions are commingled with investments and you can't directly trace the specific earnings. Since you kept yours separate in cash, you're in the clear with the simple calculation. Make sure to request a "return of excess contributions" from your HSA provider (not a regular distribution) and complete Form 5329 to report any excise tax owed for the time the excess remained in your account. Better to fix it now than let that 6% annual excise tax keep accumulating!