What Happens if You Put More Than Your Limit Into HSA?

Health Savings Accounts (HSAs) are a great way to save for medical expenses while enjoying tax benefits. However, it's important to stay within the contribution limits set by the IRS to avoid penalties. But what happens if you put more than your limit into your HSA?

If you contribute more than the allowed amount to your HSA, the excess contributions will be subject to additional taxes and penalties. These excess contributions are considered as income and are taxed at your ordinary income tax rate. In addition, you may have to pay a 6% excise tax on the excess amount.

Here's what happens if you exceed your HSA contribution limit:

• You will be taxed on the excess contributions as ordinary income.
• You may have to pay a 6% excise tax on the excess amount.
• You can avoid the 6% excise tax if you timely withdraw the excess contributions and any earnings on them before the tax filing deadline, typically April 15.
• If you don't withdraw the excess contributions, you will be taxed on them every year until they are corrected.

It's essential to track your HSA contributions throughout the year to ensure you don't exceed the allowed limits. Consult with a tax professional or financial advisor if you have questions about your HSA contributions or if you've accidentally over-contributed.

Health Savings Accounts (HSAs) are a fantastic financial tool, providing both a means of saving for medical expenses and significant tax savings. But what if you happen to accidentally exceed the IRS contribution limits?

When you contribute beyond the allowable limit, you face the possibility of incurring extra taxes and penalties. The surplus amounts are regarded as income and thus taxed at your normal income tax rate. On top of that, a 6% excise tax on the excess contributions comes into play.

Here’s a breakdown of the implications of over-contributing to your HSA:

• Your excess contributions will be taxed just like regular income.
• An additional 6% excise tax could apply to the excess amount.
• To steer clear of the 6% excise tax, consider withdrawing the extra contributions along with any earnings from them before the typical tax-filing deadline, which is April 15.
• If you miss this withdrawal, you’ll be liable for taxes on these excess funds every single year until you resolve the issue.

Monitoring your HSA contributions regularly is crucial for staying within the established limits. If you encounter any confusion or accidental over-contribution, it's wise to consult a qualified tax advisor.