IRS HSA Contribution Correction Circumstances
Mistakes can happen when making HSA contributions. Here are some examples of common ways incorrect contributions are made and how to address them.
Although IRS Notice 2008-59 does not specifically list which incorrect employee HSA situations are correctable, there are some examples that have been identified as correctable errors.
In order to correct these errors, there must be clear documentation that demonstrates there was an administrative or process error. An employer may request that the financial institution return the amount to the employer, with any correction putting the parties in the same position that they would have been in had the error not occurred.
Circumstances that may be corrected include:
- An employee was never HSA eligible
- The contribution amounts are over the federal maximum
- An employee receives an HSA deposit higher than what the employee elected to deduct
- An employer makes a contribution to the wrong HSA because an incorrect spreadsheet was accessed or because employees with similar names were confused with each other
- An employee receives an HSA contribution that was incorrectly entered by a payroll administrator (whether in-house or third-party) causing the incorrect amount to be withheld and contributed
- An employee receives a second HSA contribution because duplicate payroll files were transmitted
- An employee receives an HSA contribution because a change in employee payroll elections was not processed timely so that amounts withheld and contributed were different than what the employee elected
- An employee receives an HSA contribution that was calculated incorrectly, such as a case in which an employee elects a total amount for the year that was allocated by the system over an incorrect number of pay periods
- An employee receives an HSA contribution because the decimal position was set incorrectly, resulting in a contribution greater than intended
The following circumstances require account holder approval:
- An employee's coverage has changed and they are no longer HSA eligible, yet the employer continues to contribute
- An employee terminates employment, but the employer continues to make HSA contributions
- Any circumstance where there is not clear documentary evidence that demonstrates there was an administrative or processing error