Putting too much money in your HSA can happen, but the IRS isn’t happy when it happens. In fact, you’ll be penalized for it unless you catch it and fix it. Here’s how to do that.
HSA Contributions Have Annual Limits
For 2023, you are only allowed to deposit $3,850 in your HSA for individual plans ($7,750 for family coverage). You can make an additional $1,000 contribution if you are 55 or older. Deposits that exceed this limit can incur tax penalties and/or IRS fees. For 2023, individual contributions will increase by $200 to $3,850 for individuals and increase by $450 to $7,750 for families.
Excess Contribution Removal
To avoid penalties, you still have a chance to remove the excess funds by your tax filing deadline. You have to complete the “Excess Contribution Removal Form” and mail it to your HSA administrator.
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What Happens if the Excess Contribution Earned Money?
Even if you have corrected the excess contribution before the tax filing deadline without owing any tax penalties, if the excess contribution earned money while in the HSA, you will have to pay taxes on those earnings. Since earnings are usually very small, it isn’t a huge tax issue for most HSA owners. However, the IRS has its own method for calculating earnings so the result might be different than what you may expect.
The IRS imposes a six-percent tax penalty every year if the excess isn’t corrected by your tax-filing deadline. If you don’t want to pay that six percent every year, correct it before the tax deadline. Correct your excess contributions as soon as possible, and remember to account for deposits from employers or family members.
For example, if you are under age 55, you can only contribute a maximum of $3,850 to your HSA for 2023. If your employer places a $500 contribution in your HSA for 2023, you can only deposit up to $3,350 to not exceed the HSA annual limit. If the combined deposits go over the limit, you must remove the excess as well as the earnings on the excess before April 15, 2024 to avoid a penalty.
For any other questions about HSAs, visit our HSA FAQ page.
Here are some additional articles on HSA plans: Tax Deadline is April 15: Here’s What to Do if You Made HSA Excess Contributions | Prepare for the Unexpected: How an Accident Plan Can Help!
Here are some additional pages related to this article: HSA Information | Everything You Need to Know About How to Set Up an HSA for your Employees [2023 Update]
Wiley is President of HSA for America. He believes that consumers should have choice and price transparency, so they can make the best healthcare decisions for their needs. Read more about Wiley on his Bio page.