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I have an HSA plan that was funded by myself and my employer. Due to a math error on my part, I mis-calculated how many pay periods there were in the year, which caused the HSA contributions from my employer to exceeds the IRS limits by a small amount ($37.50.) There have been no withdrawals from my HSA this year, so the excess was not used for medical expenses.

I have a form which I can submit to my HSA custodian to have them shift that excess contribution to 2018. However, they will charge a $20 "processing fee" for the convenience, so I've decided that the best course of action is to take the 6% tax hit on the $37.50 since that's negligible.

I'm not sure, however, how to report this to the IRS. I usually file a 1040EZ, but I muddled through Pub 969 which directed me to Form 5329, which seems to indicate that I need to file a regular 1040 instead.

Since my W2 will show the excess contribution, as will the HSA forms, is it sufficient to fill out the regular 1040 and submit the 5329 for the excess $37.50? Or is there something else I need to do instead?

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  • "Since my W2 will show the excess contribution, as will the HSA forms" does that mean that the 37.50 will be listed as taxable income on the W-2 or that it will be in the HSA box?
    – mhoran_psprep
    Commented Dec 28, 2017 at 18:01
  • It'll be in the HSA box. The contribution will be $3437.50 whereas the limit was $3400.00.
    – Roddy of the Frozen Peas
    Commented Dec 28, 2017 at 18:21
  • Roddy please explain how his excess was taxed? Isn't the deduction pre-tax from his payroll and as a result not taxed yet?
    – Debbie Hall
    Commented Jan 3, 2018 at 18:02
  • @Debbie Yes, the deduction is pre-tax.
    – Roddy of the Frozen Peas
    Commented Jan 3, 2018 at 19:54

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I muddled through Pub 969 which directed me to Form 5329, which seems to indicate that I need to file a regular 1040 instead

I'm not sure where you're getting this from. It does say: "If you only owe the additional 10% tax on early distributions, you may be able to report this tax directly on Form 1040, line 59, or Form 1040NR, line 57, without filing Form 5329.", but I believe that this is only referring to early withdrawals of retirement accounts, not over contributions of health accounts.

is it sufficient to fill out the regular 1040 and submit the 5329 for the excess $37.50?

Yes. Fill out Part VII of form 5329 and include the final value on line 59 of your form 1040.

I've decided that the best course of action is to take the 6% tax hit on the $37.50 since that's negligible

Note that the IRS instructions you linked to state that: "You may withdraw some or all of the excess contributions and avoid paying the excise tax on the amount withdrawn". You may want to consider withdrawing your excess contributions and avoid any penalties.

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  • I don't understand what you mean by your last statement. I thought my options were to: A.) leave the money where it is and pay the penalty; B.) move the excess contribution to next year (which takes a "processing fee" greater than the tax hit); or C.) use the money for a qualified expense which is illegal.
    – Roddy of the Frozen Peas
    Commented Dec 28, 2017 at 20:10
  • In the answer you linked to, OP is asking about using an HSA to pay insurance premiums. Premiums aren't a qualified expense, which was the illegal part
    – Nosrac
    Commented Dec 28, 2017 at 20:33
  • I was suggesting that you withdraw the extra amount you contributed. This is essentially reversing part of a contribution you made to correct for the over contribution
    – Nosrac
    Commented Dec 28, 2017 at 20:34
  • Wouldn't withdrawing the excess then cause it to count as -- and be taxed as -- normal income, under the regular income tax rate?
    – Roddy of the Frozen Peas
    Commented Dec 28, 2017 at 20:59
  • @RoddyoftheFrozenPeas the excess contribution is already taxed as normal income. Withdrawing it avoids the extra 6% penalty on top of the regular income tax rate, which will be due no matter what OP does.
    – stannius
    Commented Jan 2, 2018 at 18:12

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