HSA Transactions and Impact to Taxes

Here’s something we are often surprised to find out as we dive deeper into how HSA providers handle this topic:  – most make mistakes when handling reversals.

Sure, everyone knows most credits are contributions, and those count towards the annual max.  And here starts another challenge, not all will enforce the statutory maximum contribution limit.  This means, they will allow the customer to contribute to the account and go over the statutory max contribution, without understanding it is the HSA trustee or custodian’s responsibility to ensure HSA account holders do not go over that amount.

Now, let’s take this one step further.  Let’s say the HSA account holder over contributed by $1,000, and only realized this a few months later.  When that account holder then requests an “excess contribution removal” or “mistaken contribution reversal”, or whatever each administrator calls the action to reverse a contribution (or amount), many administrators will just pull the amount requested, hopefully adjust what would be reported in Form 5498, and call it done.  But what about any interest earned on that $1,000?  What needs to happen to it?  Who needs to do what?

Send us a message if you know the answer, or more importantly, if you’d like to discuss the topic more and learn more about our HSA Compliance Services.

HSA Consulting Services Team