I'm getting married next year. Currently, we both have HDHP insurance with HSAs. We both have setup our payroll contributions to maximize our HSAs for $3,350 for the year. When we get married, we will be switching over to a family HSA plan which is limited to $6,650 per year (instead of $6,700). Therefore, I need to calculate exactly how much I can actually contribute to the HSAs during the year.
According to IRS Publication 969,
"You may withdraw some or all of the excess contributions and not pay the excise tax on the amount withdrawn if you meet the following conditions.
1. You withdraw the excess contributions by the due date, including extensions, of your tax return for the year the contributions were made.
2. You withdraw any income earned on the withdrawn contributions and include the earnings in “Other income” on your tax return for the year you withdraw the contributions and earnings."
Does reporting these amounts as other income result in the 7.65% SS and Medicare taxes being added onto what I owe for the year?
I think it makes sense to err on the side of contributing too much. But I want to make sure that I can pull the money back out once I can calculate exactly how much was excess. Next, I want to determine what additional tax penalties I may have to pay and if I have to then pay the 7.65% SS and Medicare taxes with my tax return. In theory, I would expect that I would have to, but this could be one of those silly loopholes. If it avoids the 7.65% SS and Medicare taxes, in this one year only, does it make sense to overcontribute to the HSA and shelter $3,400 from the 7.65% taxes?