If you find that you have contributed more to your HSA than your annual contribution limit, you can do an excess contribution withdrawal. This is effectively an “undo” button on your contribution: On your tax return you only report the amount you contributed without the excess. Any investment gains that were earned in the HSA using those excess funds must also be withdrawn, and they are added into your taxable income, so you can’t gain anything by contributing too much at the beginning of the year and withdrawing it at the end of the year.
Here’s my question: Let’s say someone made an HSA contribution and then later changed their mind in the same year. Can you do an excess contribution withdrawal even if you haven’t contributed past your limit? Would the IRS have a problem if it was reported to them that an excess contribution withdrawal was done, yet you didn’t report on your return that you had contributed up to your limit?
I have looked at IRS Pub 969 and I couldn’t find anything that explicitly prohibits this.
I don’t think the bank would have a problem with it, because they have no way of knowing what your contribution limit is. (It can be prorated based on your health coverage over the year.) But the IRS would know since you enter your prorated limit on Form 8889.
I am not in this situation, but if this is allowed it could help the OP of another question.