Tax on excess contribution to HSA [Updated]

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Tax on excess contribution to HSA [Updated]

Postby September » Wed Apr 06, 2011 9:15 pm

I accidentally contributed $60.0 more than the 2010 contribution maximum. So, I am wondering where should I report this amount on the tax form. In addition to paying the personal income tax on this, I have to pay a 6% penalty tax.

Another option is to have HSA remove this amount from my account, but they charge me a $25 excess contribution removal fee. It's cheaper for me to pay the tax and penalty to leave the $60 in the HSA.

Thanks very much for your help!


An update on this post. I've paid penalty tax for the excess contribution on 2010 and reported it on the form 5329. And I contributed $60 less to the HSA on 2011. So I don't have to pay the penalty again. Do I need to submit any forms to let the IRS know about this? Thanks!
Last edited by September on Sun Mar 18, 2012 10:26 am, edited 2 times in total.
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Postby lambdapro » Thu Apr 07, 2011 12:07 am

As you say, the excise tax is 6%. Use Form 5329, http://www.irs.gov/pub/irs-pdf/i5329.pdf. See Part VII. I'd just pay the $3.60.
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Postby September » Thu Apr 07, 2011 5:19 pm

lambdapro wrote:As you say, the excise tax is 6%. Use Form 5329, http://www.irs.gov/pub/irs-pdf/i5329.pdf. See Part VII. I'd just pay the $3.60.
David


Thanks very much for your timely help!
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Postby crumbgrabber » Thu Apr 07, 2011 5:30 pm

I think you have to keep paying this penalty indefinitely, each year, until you "undo" the excess contribution. You might want to check on this.
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Postby grabiner » Thu Apr 07, 2011 7:26 pm

crumbgrabber wrote:I think you have to keep paying this penalty indefinitely, each year, until you "undo" the excess contribution. You might want to check on this.


The OP can undo the excess contribution by contributing $60 less than the maximum for this year.
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Postby jared » Thu Apr 07, 2011 7:28 pm

crumbgrabber wrote:I think you have to keep paying this penalty indefinitely, each year, until you "undo" the excess contribution. You might want to check on this.


Yes, the penalty applies to each year the excess contribution remains in the account.

However, this might also help. From 2010 Pub 969, page 8:

Deducting an excess contribution in a later year.
You may be able to deduct excess contributions for previous years that are still in your HSA. The excess contribution you can deduct for the current year is the lesser of the following two amounts.

Your maximum HSA contribution limit for the year minus any amounts contributed to your HSA for the year.

The total excess contributions in your HSA at the beginning of the year.
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Postby September » Thu Apr 07, 2011 8:57 pm

Thank you all for your answers!

So, what I need to do is to pay the penalty for 2010 return. Then contribute $60 less for next year. On my next year's tax return, I don't need to pay any penalty, i.e. as if everything is normal.
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Re:

Postby September » Sun Mar 18, 2012 10:12 am

September wrote:
So, what I need to do is to pay the penalty for 2010 return. Then contribute $60 less for next year. On my next year's tax return, I don't need to pay any penalty, i.e. as if everything is normal.


Now I am preparing my 2011's tax return. Since I have contributed $60 less to my HSA account on 2011, so I don't have to pay penalty any more. But do I need to fill another form to declare this?

Please comment on this. I've read the guideline on form 5329 ( Additional Taxes on Qualified Plans and Other Tax-Favored Accounts), but couldn't find (or understand) what I need to do.

Thanks very much for your help!
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