Pub. 14 2019-2020 Issue 3

NEBRASKA BANKERS ASSOCIATION 27 HSA Transactions — continued on page 28 family coverage, for 2019) to an employee’s HSA, the employer may ask the financial organization to return (i.e., recoup) the excess amount with the net income attributable (NIA). The employer has until the end of the tax year in which it made the contribution to recover the ineligible or excess amount. The 2019 Instructions for Forms 1099-SA and 5498-SA indicate that financial organizations must suppress the reporting of the contribution and subsequent distribution. If the employer fails to recover the amount by the end of the tax year, then • the employer must include the excess amount as wages in Box 1 of the employee’s Form W-2, Wage and Tax Statement, for the year in which the employer made the contribution, or • the employee must report the excess amount as “Other income” on his tax return. Example: The Sweet Life Bakery made HSA contributions to all of its eligible employees in January 2019. In July 2019, the bakery’s owner discovered that it accidentally contributed $4,000 to one of its employees (Ted Adams) who only had self-only coverage during 2019. Once it discovered the error, the bakery asked the financial organization holding Ted’s HSA (SkyBlue Credit Union) to return the $500 excess contribution and NIA. The credit union returned the excess contribution and NIA to the bakery in August 2019. The credit union did not report the initial deposit of the $500 excess contribution or the subsequent distribution. Because the excess contribution was