Over funded HSA

[stargazer08]

I found out this past weekend that my employer put too much money into my HSA. It's only $50 but we know how anal uncle Sam is about this kind of stuff. I won't go into the gory details on how this happened (not my fault) but when I called to get it fixed, I was told by payroll that they were NOT going to fix it and re-issue a W-2 and that I needed to figure out what to do.

Niiice.

When I contacted our HSA administrator, they would gladly fix it for me for the small fee of $25!

I have googled and found out I can roll this overpayment into 2013 but for the life of me I can't figure out what paperwork is required. There has got to be something I need to file with the guberment. Anyone have a clue?

I am going to complain to HR but I'm in a cool down period because I really don't want to go job hunting. It's only $50 but I'm pretty P-Oed that the admin wants half of my money to fix a problem I didn't cause.

 

[JoeWras]

I'm not a tax expert (yet). So please take my advice with no guarantees.

My reading of the irs pub says you need to:
- withdraw the excess
- withdraw any gains made on that excess money (probably pennies this year)
- report the excess as income on your tax form (since it was done by your employer)
- report the gains as income
- do all this before you file, or amend your form if you filed.

This is all part of the instructions for form 8889, which you will have to file anyway. Basically, you are adjusting the numbers by moving them to "other income", while still filling 8889.

Please read details at the following link directed to "excess contributions": Instructions for Form 8889 (2012)

 

[JoeWras]

When I contacted our HSA administrator, they would gladly fix it for me for the small fee of $25!

Sorry, I missed this the first time. I have not so good news for you.

This is probably your administrator setting a fee excess contributions returned. It doesn't fix the tax reporting either, just the contribution balance. My administrator has a similar fee of $20 for excess contributions returned. You will have to have that contribution returned. AND, then you have to take the steps above in my previous post to keep your tax return in order.

It doesn't work to just withdraw the excess from an ATM. You have to request an excess contribution returned from your admin.

If that $25 is killing you, then you need to get your HR department involved, especially if they made the mistake. Sorry for the downer news.

The story here: HSAs are great. But the worst things you can do are make excess contributions, or accidental withdrawals. To fix either, the admin charges ridiculous fees. And then it complicates your tax life.

 

[stargazer08]

I found the publication but this option confuses me. Is this a round about way of saying I can adjust my 2013 contribution to take into account the $50 over contribution in 2012?

I guess I should just bend over and take the easy way out and lose the $25.
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 contributions you can deduct in 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.

Any excess contribution remaining at the end of the tax year is subject to the additional tax. See Form 5329.

 

[stargazer08]

I know I have to document the extra income if I have the funds given back.

My CPA brother-in-law doesn't want to deal with this mess.

I am going to dial in HR but I assume they won't give a sh!t...just like the payroll people.

 

[JoeWras]

Yeah, the problem with leaving it is that it is then subject to that excise tax.

This is getting complicated! Take a look at IRS form 5329. Your CPA BIL won't like that one either.

But if I read it right, you pay 6% on the excess contribution (which for $50 is a deal). If I read it right, that continues on the next year until you get rid of it, perhaps by that deduction the next tax year. It is confusing.

One thing is for sure, this little $50 has created a whole load of tax form headaches for you no matter what. My condolences.

Looks like:
- Get rid of it now, make some small entries on this tax year's form, and pay $25 to your admin to return it to you. Then blow up at the HR department.
- Let it ride, pay an excise tax, file an extra irs form. Then next year, deduct it. Make sure to under-contribute this year by at least $50 so you can do this, otherwise it will ride another year with another excise tax. More tax complications and entries. You probably still want to blow up at HR by then, especially when you have to adjust your contributions to assure you end up $50 short this year.

 

[eridanus]

Internal Revenue Manual - 21.6.5 Individual Retirement Arrangements (IRA), Coverdell Education Savings Accounts (ESA), Archer Medical Savings Accounts (MSA) and Health Savings Accounts (HSA)

21.6.5.4.10.2.1 (10-01-2004)
Excess Health Savings Accounts (HSA) Contributions

1. Contributions by an employer to a Health Savings Account (HSA) for an employee are included in the gross income of the employee to the extent that they exceed the allowable contribution limits or if they are made on behalf of an employee who is not an eligible individual.
2. An excise tax of 6% is imposed for excess individual and employer contributions. This excise tax is reported on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, Part VII, Additional Tax on Excess Contributions to Health Savings Accounts (HSAs), and posted to the IRAF, MFT 29 account. Refer to IRM 21.6.5.4.11.7, Individual Retirement Account File (IRAF) Tax Adjustments, for information on adjusting IRAF, MFT 29 accounts.

It looks like you get hit a few times: You get the $50 as earned income, pay the $25 fee, and pay 6% on the excess.

 

[stargazer08]

I bit the bullet and requested a refund from my HSA.

Lesson learned is don't assume your company will treat any incentive money they offer you like they do their contribution to your HSA when figuring out how much of your paycheck needs to go into your account.

Watch your account like a hawk if you are putting the maximum into it.

 

[EvrClrx311]

Good to know. This is the first year we've had an HSA, so we wanted to fund it to the max, and avoid having to pay from our checking account if we had a $1,500 hospital bill in Jan. The most my employer would set aside was $500 a paycheck, so we chose that. I was told they stop it automatically at the max, but I could see them going to $6,500 instead of $6,450 (is it?). I'll keep an eye out. I might just tell them to stop it at $6,000 to avoid the hassle.

 

[JoeWras]

I bit the bullet and requested a refund from my HSA.

Lesson learned is don't assume your company will treat any incentive money they offer you like they do their contribution to your HSA when figuring out how much of your paycheck needs to go into your account.

Watch your account like a hawk if you are putting the maximum into it.

Yes. My megacorp asks us how much we want at the end of the year, and they will split it per week. But they warn us in huge headlines that their incentives (fill out some stuff on the web) will not be factored in, so we need to deduct from that. I always assume I'll make max incentives. Some people don't, they forget, and then sign up for an extra incentive and go over. Megacorp won't check that. So, you are not alone, if that helps.

At least my Megacorp lets us know the absolute max incentive possible. That makes it a bit easier to stay safe.

Anyway, I think you made a wise choice. Bite the bullet now and get all the paperwork (and cost) behind you. Otherwise, this will just linger into future tax years.