I know there are other threads regarding this but I am having trouble following in regards to my situation. I have an HSA account for which I have contributed a total of about $1,800 for the year so far. My current balance is $250. My wife through her employer had a FSA account (which is a totally crazy story because we did not realize it was FSA at first). So now that we know, I am scrambling to figure out what I am supposed to do. I read that I need to return the excess contributions but wouldn't it only be the $250 that is in there now? Does that mean the remaining amount will be taxed 6% when I am doing my taxes next year? It seems like that might be the best option because it will only be like $90 but I was not sure if I am in line for more penalties or not.
Also, does it matter that my employer contributed $1,000 at the start of the year?
Posted by twisters364
1 Comment
Call the HSA account provider and explain what happened. They will have you fill out a form. They will also send you a form at the end of the year (well, early 2026).
Since you didn’t invest the HSA (right?) its not that complicated.
Normally, HSA contributions are pre-tax deductions. Meaning when you get your W-2, the amount you contributed to your HSA is already deducted from your gross pay. The amount your employer contributed is also not included.
Since you were ineligible for an HSA, those amounts (the $1800 you contributed plus the $1k your employer contributed) is actually taxable income. Your employer doesn’t know this though, so they didn’t withhold federal or state income tax on that $2,800.
When you file your 2025 return, as you answer the questions correctly, the software will report that $2,800 as additional income, and it will factor into your overall income tax calculation for the year. You could end up slightly under-withheld, but it shouldn’t be too bad. If you’re in the 22% tax bracket that’s just over $600 tax. And again, this isn’t “extra” tax, its just tax that should have been withheld on $2,800 of income but wasn’t. If you’re particularly concerned, you could update your W-4 to have $600 total extra withheld over your remaining pay periods for the year.
The 6% you are referencing an ADDITIONAL excise tax penalty, which applies if you do not notify your HSA account provider, explain that none of the contributions are eligible, and get the $250 refunded as a return of excess contributions.