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Form 8889 instructions state that excess employer contributions should be included in income on Form W-2. (Box 1 I assume?) If this is not done, instructions state that excess employer contributions must be reported as Other Income.

To me it looks like the first method (reporting the excess employer contribution on Form W-2) results in payment of FICA taxes, and the second method (reporting the excess employer contributions as Other Income) doesn't result in payment of FICA taxes.

This looks a bit weird. Is the assumption above correct? In my particular situation, the employer doesn't want/know to assist me in correcting the excess contribution so my only option is to report it as Other Income. However, I want to make sure that by doing so I do not omit something, for example, the payment of FICA taxes if that's required.

Here is the quote from Form 8889 instructions:

Excess Employer Contributions: Excess employer contributions are the excess, if any, of your employer's contributions over your limitation on line 8. (...) If the excess was not included in income on Form W-2, you must report it as “Other income” on your tax return. However, you can withdraw some or all of the excess employer contributions for 2015 and they will be treated as if they had not been contributed if (...)

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The instructions for IRS Form 8889 Line #13 Form 8889, Health Savings Accounts (HSAs) indicate that you should report the excess contributions as other income and that you should also report on IRS Form 5329 Line #47 Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts which is where the Social Security and Medicare tax will be figured and then entered on IRS Form 1040 Line #59.

Line 13

If you or someone on your behalf (or your employer) contributed more to your HSA than is allowable, you may have to pay an additional tax on the excess contributions. Figure the excess contributions using the following instructions. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to figure the additional tax.

In short - you'll be taxed either way, but one way is a bit more complicated to figure.

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    My understanding is that Form 5329 is required only when the excess contributions are not withdrawn by return due date. Also, I don't see any mention of FICA (social security and Medicare) taxes on Form 5329, nor any way to determine/pay these taxes (especially the employer's part of these taxes). As far as I understand Form 5329 is used only to pay annual 6% excise tax on non-withdrawn excess contributions. – mk33 Nov 11 '16 at 22:23

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