What happens when HSA contributions exceed the amount that may be deducted or excluded from gross income (excess contributions)?
The total of all HSA contributions made by an individual, an employer, or anyone else that exceeds the accountholder’s annual contribution limit, is called an “excess contribution.” Generally, an accountholder pays a six percent excise tax each year the excess remains in the account. Excess contributions are not tax deductible for the accountholder or for their employer. UMB’s system will not allow an HSA to go over the annual family maximum, plus catch-up contribution, but an accountholder’s annual contribution limit may be less than this amount based on coverage type, age and eligible months of the year.
It is the accountholder’s responsibility to track and limit contributions to their annual contribution limit. If an accountholder over contributes to their HSA, the excise tax may be avoided if the excess contribution amount is removed from the HSA, together with any earnings attributable to the excess contribution, before the due date for filing the individual’s federal income tax return, including extensions, for the year in which the excess contribution was made.
- In the case of post-tax contributions, the earnings attributable to the excess contribution would be taxable as income for the year in which the distribution is made, but the removed excess contribution would not be taxable as income.
- In the case of pre-tax contributions, both the earnings and the contribution should be included in the employee’s gross income on the individual tax return.Either the employee can provide UMB with written authorization to return the excess directly to the employer or if the accountholder receives funds directly from UMB, the accountholder should notify their employer of the excess contribution so the employer can amend their records to show the contributions as taxable income.