How to handle Excess HSA Contribution from 2022 on tax return?

That's a common HSA issue and you've already taken the right first step by removing the excess contribution. Here's how to handle it on your tax return: Since you've already received a distribution of the excess contribution from your HSA administrator, you'll need to report this on Form 8889 (Health Savings Accounts). The excess contribution that was returned to you will be reported in Part II of this form. Your W-2 will show the full contribution amount in Box 12 with code W, which is now technically incorrect after your withdrawal of the excess. However, you don't need a corrected W-2. Instead, you'll report the correct eligible contribution amount on Form 8889, Part I. You may also owe a 6% excise tax on the excess contribution for the time it remained in your account. This is reported on Form 5329. Since the excess was removed after the deadline, you'll likely need to pay this tax.

I had almost the exact same problem last year! I found this awesome tool called taxr.ai (https://taxr.ai) that really helped me figure out how to handle my excess HSA contribution. It analyzed my situation and walked me through exactly what forms I needed to fill out and where to report everything. The tool even explained the whole Form 8889 process way better than the IRS instructions did, and showed me how to minimize that annoying 6% tax. It basically scanned my previous tax info and gave me personalized guidance on how the excess contribution should be reported. Super helpful because the HSA rules are so confusing!

Just wanted to update everyone - I tried that taxr.ai site mentioned above and it was actually super helpful! I was skeptical at first but uploaded my documents and it identified my exact HSA contribution issue right away. It showed me exactly where to report the excess contribution on Form 8889 and calculated the exact amount of the 6% excise tax I'd need to pay on Form 5329. The best part was it explained how removing the excess after the deadline affects everything. It even created a customized checklist of the exact steps I needed to take. Honestly wish I'd found it sooner - would've known to remove the excess before the deadline and avoided the penalty altogether!

Hey, if you're still having trouble getting through to the IRS about this (their phone lines are impossible lately), you might want to check out Claimyr (https://claimyr.com). I used them when I had a similar HSA issue and needed to talk to an actual IRS agent to confirm how to file correctly. They basically get you to the front of the IRS phone queue, which saved me literal hours of waiting. You can see how it works here: https://youtu.be/_kiP6q8DX5c. When I finally got through to an IRS rep, they confirmed exactly what forms I needed and how to document the excess contribution distribution. The IRS agent I spoke with gave me specific instructions for my situation that I couldn't find anywhere online. Definitely worth it when you need official answers straight from the source.

I need to eat some humble pie here. After my skeptical comment above, I decided to try Claimyr myself since I was desperate to talk to the IRS about my own HSA issue. I honestly can't believe it worked. After trying for THREE DAYS to get through on my own (getting disconnected twice after waiting over an hour), Claimyr got me connected to an IRS agent in about 45 minutes. The agent walked me through exactly how to report my excess HSA contribution and confirmed I was handling the 6% excise tax correctly. The peace of mind from getting an official answer directly from the IRS was absolutely worth it. Consider me converted from skeptic to believer. Sometimes things that sound too good to be true actually do work.

Just a quick tip from someone who dealt with this last year - make sure you keep the distribution of excess contribution statement from your HSA provider with your tax records. The IRS specifically asked for mine when they had questions about my HSA contributions later. Also double-check if your excess contribution included any earnings that accrued while the money was in the HSA account. Those earnings are technically taxable in the year you receive them back if the distribution was after the deadline, so you might need to include that amount as "Other Income" on your return.

Anybody know what happens if you just ignore the excess contribution? My brother accidentally contributed $300 too much to his HSA last year and his tax guy told him it wasn't worth the paperwork to fix it lol.

This is exactly the kind of HSA mess that catches so many people off guard! You're definitely not alone in this situation. Since you've already gotten the excess contribution back from your HSA provider, you're actually in better shape than many people who don't realize they have this problem until much later. A few additional points to consider beyond what others have mentioned: 1. Make sure you have documentation of when the excess contribution was made versus when it was withdrawn. The timing affects whether you owe the 6% excise tax for the full year or just part of it. 2. If your HSA provider sent you a 1099-SA for the excess contribution distribution, don't panic - this is normal and expected. You'll reconcile everything on Form 8889. 3. Consider setting up automatic contribution limits with your payroll department for next year to prevent this from happening again. Many people get tripped up by mid-year job changes or bonus payments that push them over the limit. The good news is that once you file correctly this year with Forms 8889 and 5329, you'll be completely squared away with the IRS. It's a pain to deal with, but it's a one-time fix rather than an ongoing problem.