What happens if excess contributions are made?
Excess contributions are subject to an annual excise tax of 6% unless: • withdrawn prior to the due date of the employee’s tax return • taken as a taxable distribution • applied against a subsequent year’s funding limit Net income attributable to the excess contributions is included in the account beneficiary’s gross income for the tax year in which the distribution is received. But, the excise tax is not imposed, and the distribution of the excess contributions is not taxed. Individual account owners are responsible for ensuring that contributions are not in excess, even if the account includes employer contributions. Effective January 1, 2007, new rules allow for a one-time contribution to an HSA of amounts distributed from an Individual Retirement Account (IRA). The transfer is limited to the maximum HSA contribution for the year, and the amount contributed is not allowed as a deduction. Generally, only one transfer may be made during the lifetime of an individual. If an individual
