To qualify, you need an HSA-eligible, high-deductible health insurance plan. If you're still not sure if you qualify, don't be afraid to speak with your company's HR department. Or, you can contact your health insurance company to confirm your plan is qualified.
Once you have the green light, you can start making contributions—as long as you stay within these limits for These limits include annual contributions from both you and your employer. One of the biggest perks of an HSA is getting access to three different tax breaks. You may qualify for a tax deduction when the money goes in.
You can invest and grow the money tax-free. When you need the money, you can withdraw it anytime, penalty-free, for qualified medical expenses. But if you deposit more than your annual HSA contribution limit, you can't claim a tax deduction for the extra amount. Assuming the HSA custodian agrees to return the excess funds, the employer should process the correction as follows:. This may require the employer to issue a corrected Form W-2c to the employee.
There is no employer role in the correction process because the employer was not responsible for excess. The corrections are therefore handled directly by the employee in coordination with the HSA custodian.
Accordingly, the employer does not have a basis to take corrective action. The corrective distribution is reported on Line 14b of the Form filed with the individual income tax return. There is a special rule outlined in the IRS Form Instructions providing individuals the opportunity to take a corrective distribution up to six months after the due date of the return, including extensions.
This approach is available where there is clear documentary evidence demonstrating that there was an administrative or process error made by the employer. A In general. If any excess contribution is contributed for a taxable year to any health savings account of an individual, paragraph 2 shall not apply to distributions from the health savings accounts of such individual to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year if—.
Any net income described in clause ii shall be included in the gross income of the individual for the taxable year in which it is received. The amount of such tax for any taxable year shall not exceed 6 percent of the value of the account or annuity determined as of the close of the taxable year. In the case of an endowment contract described in section b , the tax imposed by this section does not apply to any amount allocable to life, health, accident, or other insurance under such contract.
The tax imposed by this subsection shall be paid by such individual. What happens when HSA contributions exceed the maximum amount that may be deducted or excluded from gross income in a taxable year? Contributions by individuals to an HSA, or if made on behalf of an individual to an HSA, are not deductible to the extent they exceed the limits described in A Contributions by an employer to an HSA for an employee are included in the gross income of the employee to the extent that they exceed the limits described in A or if they are made on behalf of an employee who is not an eligible individual.
If your employer has already created your W-2, you can work with your employer to adjust your W-2 to reflect your new HSA balance once you've withdrawn the excess funds. It can be difficult to identify exactly when you went over the limit and how much income you earned on the excess contributions.
To help ensure you withdraw the accurate amount of both your contributions and your earnings from the contributions, call Further customer support at , 7 a. Central Time, Monday through Friday and we can help.
Your excess contribution generally is subject to an excise tax as well. You can correct excess contributions by removing the excess amount and any earnings attributable to the excess contributions before you file your personal income tax return for that tax year. By doing so, you do not include the amount of the excess contribution in your taxable income and you face no additional tax.
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