What Happens If You Contribute to an HSA When Not Eligible? Tax Penalties Explained
Learn the consequences of contributing to an HSA when ineligible and how to avoid tax penalties by withdrawing excess funds before the deadline.
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If you contribute to an HSA when not eligible, you may face tax penalties. To avoid this, withdraw the excess contributions before the tax deadline to mitigate additional taxes and penalties.
FAQs & Answers
- What makes someone eligible to contribute to an HSA? To be eligible to contribute to a Health Savings Account, you must be covered under a high-deductible health plan (HDHP), have no other health coverage, and not be enrolled in Medicare.
- What are the tax consequences of excess HSA contributions? Excess contributions to an HSA when not eligible are subject to a 6% excise tax each year until the excess amount is withdrawn.
- How can I avoid penalties if I contributed to an HSA while ineligible? To avoid penalties, withdraw the excess contributions and any earnings on them before the tax filing deadline, including extensions.
- When is the deadline to correct excess HSA contributions? The deadline to withdraw excess HSA contributions without penalty is typically the federal tax filing deadline, usually April 15 of the following year.