405 / What is the tax consequence to individuals when excess contributions are made to a Health Savings Account (HSA)?

If an HSA receives excess contributions for a taxable year, distributions from the HSA are not includable in income to the extent that the distributions do not exceed the aggregate excess contributions to all HSAs of an individual for a taxable year if (1) the distribution is received by the individual on or before the last day for filing the individual’s income tax return for the year, including extensions; and (2) the distribution is accompanied by the amount of net income attributable to the excess contribution. Any net income must be included in an individual’s gross income for the taxable year in which it is received.¹

Excess contributions to an HSA are subject to a 6 percent tax. The tax may not exceed 6 percent of the value of the account, determined at the close of the taxable year.²

Excess contributions are defined, for this purpose, as the sum of (1) the aggregate amount contributed for the taxable year to the accounts, excluding rollover contributions, which is neither excludable from gross income under IRC Section 106(b) nor allowable as a deduction under IRC Section 223, and (2) this amount for the preceding taxable year reduced by the sum of (x) the distributions from the accounts that were included in gross income under IRC Section 223(f)(2), and (y) the excess of the maximum amount allowable as a deduction under IRC Section 223(b)(1), for the taxable year, over the amount contributed for the taxable year.³

For these purposes, any excess contributions distributed from an HSA are treated as amounts not contributed.⁴