Calculating excess earnings from HSA account
Client just notified they have excess contribution to HSA account in amount of $149.50 for 2018.
How do i calculate the excess earnings associated with the $149.50 so both can be removed before filing date for tax return
Thanks
Howard
Permalink Submitted by David Mertz on Sun, 2018-11-04 23:29
The earnings calculation is the same as for excess contributions to an IRA. It’s described in CFR 1.408-11 and should be done by the HSA custodian when the return of contribution is requested. For a return of excess contribution, the HSA custodian needs to issue a code 2 Form 1099-SA showing the gross distribution amount in box 1 and the earnings portion of that in box 2: https://www.law.cornell.edu/cfr/text/26/1.408-1
Permalink Submitted by Alan - IRA critic on Sun, 2018-11-04 23:59
Another alternative for such a small excess amount is to pay the 6% excise tax ($9) for 2018 on Form 5329, then contribute 149.50 less for 2019 than eligible for. The deduction will be taken in 2019 for the 149.50, not 2018. Earnings are not taxed or distributed. A 2019 5329 will also be needed to show the application of the excess to 2019.
Permalink Submitted by William Tuttle on Mon, 2018-11-05 17:21
Most HSA custodians charge $25 to remove excess contributions and earnings. If that is true, do the math. If your excess contribution is <= $25 / 6% = $416.67, you are probably better off following Alan's advice. In fact I ususally recomment a $500 cutoff.