2022 excess contribution to * Bank HSA. The HSA account has a "cash" component and an "investment" component (segregated and listed separately on the monthly statement) - the cash portion earns .01% APY and the investment component is in mutual funds. Excess deposited in cash account on 12/19/2022, distribution from cash account on 2/14/2023 - interest for 1/1/2023-1/31/2023 was about 4 cents. Taxpayer requested distribution of excess, and * Bank calculated excess earnings. * Bank used the entire account balance (cash and investment portions) to calculate earnings on the excess, and distributed $110 earnings on a $1,825 excess.
The excess was a result of a severance from service and the taxpayer no longer participated in a HDHP - * Bank told taxpayer he could fund the remaining HSA contribution available from private funds as opposed to payroll deductions (this was not correct). Upon severance, taxpayer was able to draw down from cash/investments, but the investment account was frozen for additional contributions.
I understand the HSA excess/earnings rules follow IRA rules, but is there a different calculation for earnings when the contribution went into a segregated cash account and distributed from that cash account (.01% APY), and never subject to investment experience in the mutual funds?
Thanks for reading!
