4 cent extra HSA Contribution

[Jessamine]

I was reviewing all my tax documents for 2020 and noticed that my HSA contribution last year was $3550.04, 4 cents over the contribution limit.  I emailed my company resource group to ask if they would submit the excess contribution form, but they told me to submit it myself.

Now, I have limited control over the contributions: there is a company contribution of $900 a year split over 26 paychecks.  For the remainder, I was allowed to enter my per-paycheck contribution amount during the open enrollment period.  The benefits website told us what the maximum we could contribute was, and would not allow the entry of a higher number.  There's also no way to change your contribution midyear.  My end of year statement indicated that my company actually contributed $900.12., so I wouldn't have even noticed this until after the last contribution.  I'm surprised they don't track this like they do for 401(k) contributions and automatically stop contributions at the limit.

My question is: is it even worth asking to remove the excess contribution? The form warns that there may be a $20 processing fee, which is ridiculous for a 4 cent overage.  But I also don't want to be penalized on my taxes year after year until it is removed.  The fee would also apply if I changed the tax year for the contribution.  I called the bank and they said they didn't have authority to waive the fee, but I could include a note with my form asking if they would. Is it worth it?

FWIW, my company resource group did say they were going to review this with the benefits manager to see what they could do moving forward so it's hopefully not a yearly occurrence. Thanks all!

[bacchi]

If you use the rounding method, you have to use rounding on all your forms and schedules. Fill out Form 5429, round up or down, and see what the excise fee is. :)

https://www.irs.gov/pub/irs-pdf/f5329.pdf

You can always use the future year method where you apply it to this year's contributions.

https://www.irs.gov/publications/p969

Deducting an excess contribution in a later year.

You may be able to deduct excess contributions for previous years that are still in your HSA.

[Systems101]

Not worth it.

bacchi beat me to it, explaining the rounding rules.  Worst case, you can fill out the form and add a separate statement to the IRS explaining the exact math and why it reads 0, 0, 0, 0, etc... 

[Jessamine]

Thank you, both.  Recharacterizing to this year's contribution still invokes the $20 fee.

If I am understanding the form correctly, the excise tax is 6% of the overage, which is such a small fraction of a penny that it's effectively zero.

[secondcor521]

If you round all of the entries on your tax forms as @bacchi hints to do, it is likely that the entries on Form 8889 (which is your HSA-related tax form) will not even show an excess contribution, and thus using Form 5329 would not even be necessary.

If you did so, it also probably would not even change your tax due if your taxable income is low enough to use the tax tables, since the tax due is based on $50 increments, and you'd have to be impossibly unlucky to have to round up or round down enough numbers to make a difference.

[seattlecyclone]

In fact if you do rounding it seems like you could get away with having an excess contribution of as much as $8.49. The $8.49 rounds down to $8. The 6% excise tax on $8 is 48¢, which rounds down to nothing.

[onecoolcat]

If you just put $3500.00 on your taxes would anyone give you trouble?

[MrGreen]

With rounding for taxes I honestly wouldn't even bother reporting. The IRS is not auditing anyone over four cents.

[Dave1442397]

Yeah, I wouldn't report that.

My company screwed up and added a $45 dollar contribution to my final HSA contribution for the year. I have filled in the form to have the excess contribution removed from my account (it's on hold somewhere), and had to confirm on my tax return that I had submitted the form.

[BlueMR2]

4 cents is just a rounding error.  My HR department screwed up really bad in 2019 and dropped in an extra $126 over my limit.  Then I screwed up that year by buying a prescription that wasn't actually covered by HSA.  Who knew, just because it's a prescription doesn't mean it's covered under HSA allowed items...

Anyways, not that hard to handle on taxes.  When you fill out the 8889 and 1040 you'll end up invoking a couple more short schedules (1 & 2) depending on exactly which ways you went wrong.  Not a big deal and unless you messed it up by huge dollar values it's not going to cause much of an impact on your end result.