HSA over-contribution and a non-medical withdrawal
A single filer with self-only HDHP coverage puts too much into his HSA once his employer's contribution is counted, leaves the excess in, and spends part of an HSA withdrawal on something that is not a medical expense. Form 8889 and Form 5329 Part VII, with both additional taxes flowing to Schedule 2.
The taxpayer's facts and source documents are free with an account. No card, nothing to cancel.
Taxpayer facts
Who this is and what their year looked like.
Tobias is single, 36, and lives in Concord, New Hampshire. He works full time as a quality assurance analyst and had self-only coverage under his employer's high-deductible health plan for all of 2025.
His employer put money into his HSA through payroll, and Tobias also set up his own monthly transfer to the HSA from his checking account. He set the transfer amount using the 2025 self-only limit without counting what his employer had already put in. During the year he used his HSA debit card for a dental crown and a pair of prescription eyeglasses, and once, at a checkout, for an espresso machine. He takes the standard deduction.
Source documents
The 4 documents you will prepare the return from: W-2 (Wage and Tax Statement), 1099-SA (Distributions From an HSA, Archer MSA, or Medicare Advantage MSA), 5498-SA (HSA, Archer MSA, or Medicare Advantage MSA Information), HSA debit card log: Tobias E. Lindqvist.
Free with an account
Create a free account to open the taxpayer's facts and every source document. No card, nothing to cancel.
Objectives
What a correct return should capture.
- Enter the W-2 and recognize box 12 code W as an employer contribution to the HSA. It is already excluded from box 1, and it belongs on Form 8889, line 9, not line 2.
- Complete Form 8889, Part I: check self-only coverage, use the 2025 self-only limit of $4,300 on line 3, put only his own direct contributions on line 2, and work through lines 8 to 12 to find what he was still allowed to contribute after the employer's money.
- Work out the HSA deduction on Form 8889, line 13 (the smaller of line 2 or line 12) and carry it to Schedule 1, line 13. Do not deduct more than the limit allows.
- Work out the 2025 excess contribution (line 2 minus line 13), and check whether any of it is an excess employer contribution (employer money over the line 8 limitation) that would have to be added to income.
- Because the excess was not withdrawn by the due date, complete Form 5329, Part VII: skip lines 43 to 46 (no prior-year excess), enter the 2025 excess on lines 47 and 48, and figure the 6% tax on line 49 from the smaller of line 48 or the HSA value at 12/31/2025. Carry it to Schedule 2, line 8.
- Complete Form 8889, Part II from the 1099-SA and the debit card log: decide which charges are qualified medical expenses for line 15, and carry the taxable distribution on line 16 to Schedule 1, line 8f.
- Decide whether any exception to the 20% additional tax applies (death, disability, or age 65), then figure Form 8889, line 17b and carry it to Schedule 2, line 17c.
- Apply the 2025 single standard deduction of $15,750 and figure the regular tax. If taxable income is under $100,000, use the tax tables.
- Add the Schedule 2 total to the regular tax and reconcile the W-2 withholding to the refund or balance due.
- Note that New Hampshire has no state income tax on wages, so there is no state return here.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
Stuck? Work through it with Yehuda
A one-on-one, 30-minute tutoring session on this return with Yehuda Tenenbaum, EA. Bring the spot where you got stuck and we will work through it together: how the forms connect, why a figure lands where it does, and how to check your work. $250. This is education on the practice return, not advice on your own taxes.