Question

Which of the following statements is TRUE regarding excess contributions to a Health Savings Account (HSA)?
Excess contributions are subject to a 20% penalty.
Excess contributions can be carried over to the next year by submitting Form 2121.
Excess contributions may be withdrawn without penalty by the tax return due date (including extensions), provided the taxpayer does not claim a deduction and no earnings were generated on the excess amount.
Only the taxpayer's employer can correct excess contributions, and they have no impact on income tax.

Answer 1

The third statement is TRUE.

Explanation/clarification:
- Excess HSA contributions can be withdrawn by the tax return due date (including extensions) to avoid the 6% excise tax. The excess contribution itself is not subject to that excise tax if timely withdrawn.
- Any earnings attributable to the excess must also be withdrawn and are taxable as income. If you fail to withdraw the excess by the due date, a 6% excise tax applies for each year the excess remains.
- The 20% penalty referenced in choice 1 applies to non‑qualified HSA distributions (not to excess contributions). Form 5329 (not Form 2121) is used to report excise tax.