Contributing to your Health Savings Account (HSA) is a great way to save for healthcare expenses, but it's important to ensure your contributions align with IRS guidelines. If you contribute more than the annual limit or make contributions by mistake, you may need to take action to correct the error. Depending on the situation, you may need to withdraw excess funds to avoid penalties or adjust your contribution total for the applicable tax year. This guide explains the difference between excess and mistaken contributions, how to request a withdrawal, and what to consider when correcting HSA contributions.
Excess contributions
Excess contributions happen when the total yearly contributions to your Health Savings Account (HSA) exceed the IRS limit.
If this occurs, you'll need to pay a 6% excise tax on the excess amount for each tax year the extra funds stay in your HSA. To avoid this tax, you can withdraw some or all of the excess contributions if you meet the following conditions:
- You withdraw the excess contributions by the tax deadline, including extensions, for the year the contributions were made. You can withdraw excess contributions from the previous year by mid-April on Forma. To learn more, see What happens if I over-contribute to my HSA?
- You withdraw any income earned on the withdrawn contributions and include the earnings in the “Other income” field on your tax return for the year you withdraw the contributions and earnings.
The withdrawal of excess contributions will be reported in your 1099-SA form for the given tax year.
Mistaken contributions
Mistaken contributions happen when contributions to your HSA are made in error, even though they don't exceed the IRS annual limit.
There are no penalties for mistaken contributions, but any approved request will reduce the total contribution amount for the applicable tax year.
To withdraw mistaken contributions from the previous year, you must do so by the tax deadline (including extensions) for that year. On Forma, you can request to withdraw mistaken contributions until mid-April. To learn more, see What happens if I over-contribute to my HSA? for more information.
Important: You should only withdraw excess or mistaken contributions if you made the contributions yourself outside of payroll. If the excess or mistaken contributions were made through payroll deductions, please work with your employer to make those corrections.
Please reach out to your tax advisor if you have any tax questions.