Taxes: Worried about HSA Distributions and 2025 Taxes

[TickTock]

We over-contributed to our HSAs in 2024. (We were eligible in April 2024, which is when we made the max contributions. That's allowed, provided you stay on an HSA-eligible plan for the entire next calendar year. Well, no plans were available in our zip code in 2025. So we were only eligible for 9/12 of the max.) We didn't figure this out until March of 2025, at which time we pulled out the necessary taxable distributions and noted the "Earnings on Excess Contributions" amounts. Our 2024 taxes reflect this.

This year we received the 1099-SA forms showing those 2025 distributions and earnings. It's already handled properly on our 2024 taxes. I'm nervous; my brain says the IRS should look back at 2024 and realize this was handled. But what if they send a letter saying those distributions and earnings need to be paid in 2025 taxes? Is there some letter of explanation I should provide? Has anyone else run into this situation? Looking for advice.

If it matters, we just purchased Turbotax Premier (desktop). Perhaps there's help in that package, or maybe I should call the 800 number and ask for help?

 

[cathy63]

The earnings go on the tax return for the year when you received them, which is 2025. The returned contributions (as long as you withdrew them before April 15 last year) are taxable income for the year when you over contributed, which was 2024. It sounds like you reported both the over contribution and earnings as income in 2024. To fix this, you would need to amend your 2024 return to remove the earnings and then report them as income on your 2025 return.

But how much in earnings are we talking about and how much would the tax be? 25% of the max 2024 family contribution looks like it would be $2075 for the overcontribution, so even if you had a 20% return in those 9 months that would be about $415, and if you're in the 22% bracket you paid $91 in tax. If those numbers are even close to correct, I'd just ignore it for 2025 and see what the IRS does. If they send you a letter, you can amend both returns at that time. And actually you won't need to amend the 2025 return if the letter has the correct additional tax, you can just pay it and amend only the 2024 return to get it refunded.

 

[TickTock]

cathy63,

You have it right - we withdrew in March of 2025 and reported both the over contribution and earnings as income in 2024. The earnings are $109. I'll wait and see what the IRS does. Thanks!

So, I had it right to include the withdrawal in 2024 taxes but should have waited until 2025 taxes for the earnings. I missed that. Of course, so did the CPA...

 

[TickTock]

In case anyone is interested/has a similar situation...

(I ended up buying TurboTax's "live tax advice" for $60. I had questions in four areas, but by far the most complex was the HSA accounting. They walked me through this - took about 50 minutes. on the phone.)

It turns out that on Form 8889 Health Savings Accounts, lines 14a and 14b handle distributions received in 2025 and excess contributions (including earnings on excess contributions) that were withdrawn by the due date of the return. So it looks like the IRS looks at and handles both excess contributions and earnings on them.