Excess HSA Contributions: IRS Penalties, Withdrawals, and Form 5329

If you put too much into your health savings account, you have two ways to fix it: pull the excess out (along with anything it earned) before your tax filing deadline, or leave it and pay a 6% excise tax every year the excess sits in the account. Excess HSA contributions are any dollars above the annual IRS limit, which for 2026 is $4,400 for self-only high-deductible coverage and $8,750 for family coverage, with an extra $1,000 allowed if you are 55 or older.¹ Which path makes sense depends on how quickly you catch the mistake and how big the excess is.

Confirm You Actually Have an Excess

The limit applies to every dollar going into the account from every source combined: your payroll contributions, anything you put in directly, and whatever your employer kicks in.² That combined total is what people miss. An employer lump-sum deposit at the start of the year plus a maxed-out payroll election is the classic setup for an accidental overage.

A few other situations quietly create an excess:

Medicare enrollment. Once you enroll in Part A or Part B, your HSA contribution limit drops to zero for every month you’re covered. Part A can apply retroactively for up to six months, so contributions you made months before you signed up can become excess after the fact. Stop contributing at least six months before enrolling.²
Losing or changing HDHP coverage mid-year. Your limit is prorated by the number of months you were eligible unless you qualify for the last-month rule (HDHP coverage on December 1, with a testing period requiring you to keep that coverage through the following calendar year).³
Disqualifying coverage. A general-purpose health FSA or HRA, including one your spouse holds that could reimburse your expenses, disqualifies you from HSA contributions. Limited-purpose FSAs restricted to dental and vision do not.

Once you know your true limit for the year, subtract what actually went in. Anything above the limit is the excess you need to address.

Withdraw the Excess Before Your Filing Deadline

The clean fix is a “return of excess contributions” through your HSA custodian, requested before your return is due. For a 2026 excess, that deadline is April 15, 2027, or October 15, 2027 if you filed Form 4868 for an extension. The later date is not automatic — you have to actually file the extension.³

Your custodian pulls out two things: the excess itself and any earnings it generated while parked in the account. The excess principal is not taxed on the way out because it never earned a deduction going in. The earnings are added to your income for the year they’re withdrawn and reported as “Other income” on Form 1040.²

A timely withdrawal ends it. No 6% tax, no ongoing exposure.

How the Earnings Amount Is Figured

The custodian calculates attributable earnings using a formula from IRA regulations: the excess is assigned a proportional share of the account’s growth (or loss) during the period it was in the account, based on the adjusted opening and closing balances.⁴ If the account lost money in that window, the attributable earnings can be negative and you get back slightly less than you put in. You don’t run this math yourself, but it explains why the withdrawal check rarely matches the excess to the penny.

If the Money Isn’t There Anymore

If you’ve already spent the account down on medical expenses and the balance is smaller than the excess, you can’t return what isn’t there. Some custodians can reclassify earlier distributions to include the excess, depending on their procedures. Anything you can’t remove by the deadline falls into the 6% penalty for that year. Depositing new money just to withdraw it doesn’t cure the timing problem — the funds needed to be present to return.

The 6% Excise Tax If You Miss the Deadline

Once your filing deadline passes with the excess still in the account, the IRS applies a 6% excise tax on whatever remains at year-end.² The tax repeats every year the excess is still there. A $1,000 excess costs $60 a year; leave it five years and you’ve paid $300 on money that shouldn’t have been in the account.

Absorbing the Excess in a Later Year

You can end the penalty without withdrawing anything by under-contributing in a future year. The uncorrected excess reduces the next year’s allowable contribution. If your prior-year excess is $600 and the 2026 self-only limit is $4,400, contributing $3,800 or less in 2026 absorbs the excess, and the 6% stops.²

Absorption is usually the better move only for small excesses discovered after the deadline. For larger amounts, paying tax on the earnings and withdrawing is typically cheaper than 6% a year while you wait for future room to soak it up.

Filing Form 5329 Matters Even If You’re Paying the Penalty

Form 5329 is where the excise tax gets reported. Skipping it doesn’t erase the penalty; the IRS has taken the position that the statute of limitations on the Form 5329 excise tax runs separately from your Form 1040, so an unfiled Form 5329 can leave the exposure open indefinitely. File the form for every year the excess remains, even if nothing else on the return requires it.⁵

The Forms You’ll See

Form 1099-SA comes from your custodian and reports the distribution. Box 1 is the total distributed, Box 2 is the earnings on the returned excess, and Box 3 carries a distribution code — code 2 flags an excess contribution withdrawal.⁶

Form 8889 is filed with every HSA owner’s Form 1040. Line 13 is where you compute excess contributions for the year. A timely-withdrawn excess (with earnings) is entered on Line 14b, and the earnings then flow to “Other income” on Form 1040.³

Form 5329 reports the 6% excise tax when the excess wasn’t withdrawn in time. HSA excess contributions go in Part VII beginning at Line 47, and the calculated tax carries to Schedule 2 of Form 1040.⁷

When the Excess Came From Your Employer

An employer over-contribution follows the same timeline: return it through the custodian before your filing deadline and the 6% penalty doesn’t apply. The reporting differs slightly. Excess employer contributions not already included in Box 1 of your W-2 have to be reported as “Other income” on your return.² Your W-2 generally does not need to be corrected; Box 12, code W shows what was contributed during the year, and the fix runs through your income tax return.

One thing you don’t recover: FICA. Employer HSA contributions are usually exempt from Social Security and Medicare taxes at the time they’re made, and the IRS provides no mechanism to reclaim those payroll tax savings when the excess is returned. The correction is an income-tax event only.

State Tax Treatment Isn’t Universal

Most states follow the federal rules and allow the HSA deduction. A few do not and treat HSA contributions as taxable at the state level to begin with. If you live in one of those states, returning an excess may have no state-level impact because you never got a state deduction to unwind. Check your state’s treatment before assuming the withdrawal creates taxable earnings on your state return.

1
IRS. Revenue Procedure 2025-19
2
Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
3
Internal Revenue Service. Instructions for Form 8889 (2025)
4
eCFR. 26 CFR 1.408-11 – Net Income Calculation for Returned or Recharacterized IRA Contributions
5
Internal Revenue Service. About Form 5329 – Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts
6
Internal Revenue Service. Form 1099-SA Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
7
Internal Revenue Service. Instructions for Form 5329 (2025)