What this line means
The 6% excise tax on excess HSA contributions, calculated by multiplying the excess amount on line 41 by 0.06. This penalty applies for each year the excess remains in the account. Withdraw the excess and its earnings before the tax filing deadline (including extensions) to avoid the penalty for that year.
Does this apply to you?
- You have uncorrected excess HSA contributions at year-end
- You owe the recurring 6% penalty on HSA excess amounts
- You need to calculate the HSA portion of your total excess contribution penalty
Easy to overlook
The 6% tax is capped at 6% of the HSA fair market value Like the IRA excess tax, the HSA excess contribution tax cannot exceed 6% of the total fair market value of all your HSAs at the end of the year. If your total HSA balance is $1,000 and the excess is $2,000, the tax is $60 (6% of $1,000), not $120. 1 IRS Form 5329 instructions — Line 44
Switching from family to self-only HDHP coverage can create an unexpected excess If you had family HDHP coverage (limit $8,550) for part of the year and switched to self-only coverage (limit $4,300), your contribution limit is prorated based on months of each coverage type. Contributing the family limit for the full year when you only had family coverage for six months creates an excess. 2 IRS Publication 969 — Health Savings Accounts
Watch out for this
Withdrawing the excess contribution but forgetting to also withdraw the earnings on that excess. When you remove excess HSA contributions before the filing deadline, you must also remove the net income attributable to the excess. The earnings are included in your taxable income for the year. Leaving the earnings in the HSA does not eliminate them from the excess calculation.
Footnotes
-
IRS Form 5329 Instructions, Line 44. https://www.irs.gov/instructions/i5329 ↩
-
IRS Publication 969, Health Savings Accounts, Coverage Changes. https://www.irs.gov/pub/irs-pdf/p969.pdf ↩