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2021 Excess HSA Contribution, Withdrawn in 2021


Patrick Michael

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First time I have run into this and the more read the instructions the more confused I get. Client changed jobs in 2021 and had $1,253 in excess HSA contributions between the two jobs, reported as "W" on the W-2's. This amount is showing up on Line 47 of Form 5329, with the additional tax calculated. He withdrew the excess plus earnings as soon as I notified him. My questions:

Is the excess still subject to the 6% tax?
Where and how do report the withdrawal of the excess?

Thanks

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No, because he withdrew the excess + earnings before the due date, he isn't subject to the penalty.  Instructions for Form 5329, line 47 says to report this distribution on Form 8889, lines 14a and 14b.

I find this interesting that 14a won't tie to any 2021 forms 1099-SA, and that distribution should be reported by the custodian on a 2022 1099-SA with code 2.

I'd get the documentation of the withdrawal and any calculations of how you arrived at the earnings amount NOW and keep it in case the IRS questions it. It's easier to keep it now rather than having the client try to find it again ~ 2 yrs from now.  Similarly, I do this for the 60-day IRA rollovers too, in case IRS questions the timing.

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Thanks Judy.  I missed putting it on 14B (guess that what happens when you're reading IRS instructions at 11 PM after working all day!).  The 6% penalty is still calculating on Form 5329.  Is this correct? And do I have to add the$1,253 back into their income on Sch 1 since it was not included in Box 1 of the W-2?

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