What happens with HSA excess contributions?

QUESTION from a broker:

I need your assistance.   One of my clients (who uses a bank to handle the employee HSAs) just determined that several employees have contributed over the maximum for2011.  I have done some research and found that most banks will allow the individuals to complete an “Excess Contribution Form” and withdraw the money before the tax filing deadline.

However, what happens with this on the employer level?   How would the employer have to go back and adjust their tax filings to account for the payroll tax benefits they received from the excess contributions?

On a side bar, if she had been using you guys for the administration, would you have alerted her to the fact that someone was going to exceed the allowable thresholds based on their payroll schedule and contribution amounts?

Your assistance on this is greatly appreciated.


What happens if I contribute more than my maximum allowable contribution? 
You may withdraw the excess amount and any earnings on the excess amount prior to April 15th of the following year. However, you must pay income tax on your excess contributions and income tax on any earnings of the excess contribution. There is no 20% penalty on excess contributions.

What happens if I don’t withdraw my excess contributions prior to April 15th of the following year? 
You must pay a 6% excise tax on the excess contribution and on any earnings of the excess contribution. If in the next year you decreased your maximum contribution by the amount of your excess contribution made the year before, you do not have to pay the 6% excise tax again. If, however, you leave the excess contribution in, and do not decrease your maximum contribution by the amount of your excess contribution made the year before, you will have to pay the 6% excise tax each year the excess contributions and earnings are in the HSA.


posted from Federal Employees Website

Continued QUESTION:

Are there any penalties or adjustments needed on the employer side who payroll deducted the excess contributions, since theoretically they saved the matching FICA on those dollars?



No penalties. But if they (employer and employee) make the change before January 1 to the correct amount, the employer can put on the W2 correctly. If not, the employee will have to pay their own taxes and presumably the bank (you hope) will give them a 1099 of some sort to file and the employee will pay taxes on that excess amount including 6% addtional. Does that help?

Don’t forget eflex has a fantastic HSA product that never requires an employee to contact a bank. The employees can get 10 investments that Fidelity manages, and they can get checks, correct answers every time they call in and debit cards. For a quote contact isaiah.joyner@eflexgroup.com

Posted in CEBS, HSA | Leave a reply

About rjoyner

Ric Joyner, CEBS, GBA, CFCI Customer Experience Officer Ric is a founder of eflexgroup.com a national web based TPA for Cafeteria, HRA, HSA, Transit, VEBA and COBRA plans. eflexgroup is a leader in self-service employee benefit systems. eflexgroup was the first TPA in the industry to go “online” in 1999 allowing employees to self-serve 24 hours per day. He has lead the industry with eflex by placing provable customer service statistics, live, on eflexgroup.com Ric is celebrating his 32nd year employee benefits. He helped create TPAs such as TASC and Employee Benefits Corporation in Madison WI. He was a licensed insurance agent for 29 years. The designations Mr. Joyner holds are; Certified Employee Benefits Specialist, Group Benefit Associate, Certified Flexible Compensation Instructor, board approved by ASPA to teach Cafeteria Plan regulations. Ric also has a bachelors of science in Information Technology and MBA (emphasis is project management) and graduated summa cum laude from Capella University with a 4.0. Ric helped found the National Association of Professional Benefit Administrators (NAPBA.org). NAPBA is dedicated to training administrators in best practices and grass roots lobbying. Ric has served in the past as the Wisconsin Association of Health Underwriters State President in 2003. Ric is a frequent speaker and article writer for prestigious associations such as NAHU.org, NAPBA.org, Wisconsin SHRM, Austin SHRM, PACE.org, International Foundation of Employee Benefits, Tampa Bay AHU, WI AHU, Florida AHU, Florida NAIFA and participates on the List Serves (compliance programs for Consumer Driven Products of NAHU and International Foundation of Employee Benefits)

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