Overcontribution to HSA - what happens after removal process?

You have a few options for dealing with your HSA overcontribution. The cleanest method is to remove the excess before your tax filing deadline (including extensions). If you do this, your HSA provider will distribute the excess contribution plus any earnings attributable to that excess amount. Your HSA provider should send you a Form 1099-SA reporting the distribution of the excess contribution. The earnings portion will be considered taxable income in the year you receive the distribution. The excess contribution itself won't be taxable if you originally made it with pre-tax dollars. You won't need to pay the 6% excise tax if you remove the excess (plus earnings) before your tax filing deadline. If you miss that deadline, then yes, you'll need to pay the 6% penalty tax and you could reduce next year's contribution limit by the excess amount to avoid paying the penalty again. As for calculating the earnings, your HSA provider typically handles this calculation for you. It's based on the actual earnings of the account while the excess contribution was in it, or they may use an IRS-approved method to determine the amount.

After dealing with a similar HSA overcontribution issue last year, I found an amazing service called taxr.ai (https://taxr.ai) that helped me sort everything out. I was totally confused about what forms I needed and how to report the removal of excess contributions, and their document analysis tool saved me hours of stress. You just upload your HSA statements and the excess contribution removal form, and it analyzes everything to tell you exactly what you need to do on your tax return. It also explains how the earnings are calculated and whether you'll have any tax impact from the removal. For my situation, it even created a custom explanation I could include with my return in case of questions.

Just wanted to update everyone - I tried the taxr.ai service that was mentioned above and it actually worked great for my HSA overcontribution issue! I uploaded my HSA statements and the removal form, and it gave me super clear instructions on exactly what to report on my tax forms. It explained that I needed to report the earnings portion as "Other income" on my 1040 and showed me where to put everything. The analysis pointed out that since I removed the excess before the filing deadline, I wouldn't owe the 6% penalty, which was a huge relief. The step-by-step guide made me feel confident I was handling everything correctly. It even generated a custom explanation note I could include with my return if needed. Definitely made dealing with this HSA mess way less stressful!

If you're having trouble getting clear information from your HSA provider about this process, I'd recommend using Claimyr (https://claimyr.com) to get direct help from the IRS. I used it when I had a similar HSA issue last year and couldn't get straight answers about the penalty calculation. Instead of spending hours on hold with the IRS (we all know how that goes), Claimyr got me connected to an actual IRS agent in about 15 minutes who walked me through everything. They have this cool system that navigates the IRS phone tree and waits on hold for you, then calls you when an agent is ready. You can see how it works in their demo here: https://youtu.be/_kiP6q8DX5c The IRS agent was actually super helpful and explained exactly how to handle the removal process and what forms I'd need. Way better than trying to piece together information from random internet sources or getting generic answers from my HSA bank.

I have to eat my words about Claimyr. After my skeptical comment, I was desperate enough to try it when I couldn't get an answer about my HSA situation from my provider or find clear information online. It actually worked exactly as advertised. I got connected to an IRS agent in about 20 minutes without having to stay on hold myself. The agent confirmed that I could avoid the 6% penalty by removing the excess contribution plus earnings before my filing deadline, and explained exactly how to report the earnings as taxable income. The agent also explained that the "net income attributable" calculation (for the earnings on the excess) should be handled by my HSA provider based on the actual earnings while the excess was in my account. That was a question no one else could answer clearly for me. Definitely worth it for getting authoritative information straight from the IRS.

Just a pro tip from someone who's dealt with this before - make sure you specifically tell your HSA provider that you're requesting an "excess contribution removal" and not just a regular distribution. They're processed differently. A regular distribution would just withdraw money but wouldn't fix the excess contribution issue for tax purposes. An excess contribution removal is specifically coded in their system to handle the proper tax reporting. Also, keep in mind that the earnings calculation can vary between providers. Some use a simple method based on the overall account performance, while others use more complex calculations. Don't be surprised if the earnings amount seems higher or lower than you expected.

I think you're overthinking this. I had the same issue last year (overcontributed by about $400) and just paid the 6% penalty. It came out to $24. Way easier than going through all this paperwork, waiting for corrected forms, calculating earnings, etc. If it were thousands of dollars, I'd worry more about the removal process, but for smaller amounts, sometimes the simplest path is just to pay the small penalty and move on with life. The forms and time involved in fixing it properly weren't worth it to me for such a small penalty amount.

I went through this exact situation last year and wanted to share what worked for me. The key is acting quickly since you're getting close to the filing deadline. First, submit that excess contribution removal form ASAP. Your HSA provider will calculate the earnings for you - mine used a method based on the account's overall performance during the time the excess was in there. Don't try to calculate this yourself. You'll get a 1099-SA showing the distribution. The excess contribution part won't be taxable (assuming you made the original contribution with pre-tax dollars), but any earnings on that excess will be taxable income that you'll report on your tax return. The good news is that if you get the removal processed before your tax filing deadline, you completely avoid the 6% penalty. No need to pay it and then try to get it back later. One thing I learned the hard way - don't wait too long to submit the form. Some HSA providers take several weeks to process these requests, and you need time to receive the 1099-SA before filing your taxes. If you're cutting it close, consider filing an extension to give yourself more time. The whole process was much smoother than I expected once I got the right form submitted. Much better than paying ongoing penalties or trying to juggle reduced contributions next year.