If you deposit more than your annual HSA contribution limit, you can't claim a tax deduction for the extra amount. In the eyes of the IRS, your excess contribution becomes taxable income. To make matters worse, you will have to pay an extra 6% tax on your excess contribution.
To avoid paying a 6% excise tax, you can withdraw the extra contribution money as long as you follow the below rules:
- You withdraw your excess contribution before your deadline for tax returns—including extensions.
- If you earned money on your excess contributions, that money needs to come out, too. You will need to claim the earnings as "other income" on your tax return.
If you have a First Dollar HSA, we can help. Please email or call our support team.