Can Someone Guide Us How to Fix Excess Contributions Made to HSA in 2023-2024 While on Medicare-After 2023 Tax Return Was Already Filed

Forum|Forum|1 year ago
June 7, 2024
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We are trying to fix a mess due to contributions made to HSA while enrolled in medicare.

Some claim these are not excess contribution if they were made within allowable limit, but because my wife added funds to her HSA when she was no longer eligible to make contributions due to medicare coverage, these are considered excess contributions. I'm asking this again because I'm getting different answers from different people and no solution.

There is a rule which prohibits any contributions to HSA while enrolled in medicare. My wife filed an application for SS benefits in April 2024, she is over 65. She's still working and we're both insured under her family HDHP plan. I don't have an HSA account. The SS application was approved in May 2024 and her medicare coverage kicked in 6 months earlier in October 2023. Because she contributed to her HSA for 12 months in 2023 we were told to remove contributions for October, November and December 2023, which she did. She also removed any contributions for year 2024. She requested in May 2024 for those contributions to be returned and the HSA custodian sent her checks already which also included earning on those contributions. Her 2024 contributions for those three months were $692 and $1920 for year 2024 plus some cents for earnings. The HSA custodian said they are not going to send any corrected 1099 forms in 2024, instead they'll send 1099 forms for withdrawals in 2025 for both years, but I don't know if this is true, since they told us before that they'd issue corrected forms. I do believe those 1099sa forms or form will have distribution code 2. Since we don't want to file an amended 2023 tax return and override a bunch of forms we're looking for an advice how to approach this. Some say an amended 2023 tax return is not the right solution in this case.

As far as I understand, one option would be to wait until they send new 1099s and w2s forms in 2025 and take it form there, but some people advise to return 2023 contributions and only report excess 2024 contributions in 2025 as other income. Can someone guide and help us, since this is not a common issue, I'm worry that we'll have problems to fix this in TT and won't be able to e-file our next year's tax return. We would greatly appreciate any help.

Best answer by dmertz

@dmertz So, what would you recommend in our situation? I was thinking to return all those 2023 excess contributions for those three months to the custodian, I'm pretty sure this is still possible. It would show that she contributed for all 2023 within the allowable limit and first four months of 2024, which would be excess contributions (she already received the check). Then wait for 2024 1099sa form showing those January-March 2024 contributions as excess contributions. She already stopped contributing in April and her 2024 contributions are zero right now. Thanks,

With no excess contribution having been made and if the distribution is treated as constituting a regular distribution, the distribution can be deposited back into the HSA within 60 days as a rollover (provided that this would not result in a violation of the one-rollover-per-12-months limitation). The challenge will be convincing the HSA custodian that the distribution cannot have been a return of excess contribution because no excess contribution had actually been made. If they can be convinced, they should recode the distribution as a regular distribution so that the 2024 Form 1099-SA has the appropriate coding to indicate a regular distribution. With the 2024 Form 1099-SA showing a regular distribution, it will be a simple matter in 2024 TurboTax to indicate that this distribution was rolled over.

Opus 17

Employee

You have posted about this a number of times. You should really keep all your followup questions under the same original post because, if I want to really understand your question, I now have to go back and read several prior discussion. I'm not sure I want to do that, if you ask your clarifying question under the same original post as a followup, the same people who replied will be notified of your followup and will have the chance to answer your questions.

I do want to clarify one point

"There is a rule which prohibits any contributions to HSA while enrolled in medicare."

This is factually inaccurate. Medicare enrollment determines the amount of eligible contributions but does not control when they must be made. For example, if enrollment begins October 1 2023, then the person has 9 months of eligibility, and the contribution limit for 2023 will be either $3637.50 (for single HDHP coverage) or $6562.50 (for family HDHP coverage, includes the over-55 catch-up amount). However, that dollar amount can be contributed any time between 1/1/2023 and 4/14/2024, even after Medicare enrollment. What counts is the dollar amount contributed, not when in the year the contribution was made.

BoomhauserAuthor

@Opus 17 Sorry about that, but I'm getting mixed messages about contributing while enrolled in part A Medicare after 65. There is no mention that amount contributed counts as much as date of contribution. We are not tax pros and even tax pros does not fully understand that issue. I just want to know what to do now. We could still request those excess contributions to be returned to the HSA custodian, but they're also telling us that we might have excess contributions because the medicare kicked in in October. What's your recommendation? There are some articles about that issue below: Please advise, Thank you,

https://www.journalofaccountancy.com/issues/2021/jul/medicare-rules-on-hsa-after-age-65.html

https://www.medicareinteractive.org/get-answers/coordinating-medicare-with-other-types-of-insurance/job-based-insurance-and-medicare/health-savings-accounts-hsas-and-medicare

https://www.uhc.com/news-articles/medicare-articles/hsas-and-medicare

Mike9241

Medicare kicked in 10/2023. that means the allowable contributions for 2023 would be 75% of the maximum

since she had family overage in 2023 and she was over 55 a full year's contribution would have been 7750+1000(her being over 55) - no contribution for you for being over 55 - that requires you to have your own HSA. so the allowable max for 2023 is 75% of 8750 or 6562.50

if you were not on extension the excess had to be withdrawn by 4/15/2024. if not, then you would owe a 6% penalty on the excess. if these contributions were made personally there are no other tax consequences, However, if made through employer or employer matching contributions the excess is taxable income for 2023.

if you were on extension, since you timely withdrew the excess (May 2024) there would be no penalty but if the contributions were through her employer the excess would be taxable income.

there would be no penalty on the excess for 2024 since it was withdrawn by 5/2024. however, as in 2023 if these were through your employer the excess would be taxable income

the rules read income is reportable for the year withdrawn which would seem to indicate any income on the 2023 correction needed to be reported in 2023 while the 2024 income would be in 2024.