Excess HSA Contribution Problems Due to Medicare Enrollment-6 Month Rule

Forum|Forum|1 year ago
May 6, 2024
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Hello,

In April 2024 my wife filed an application for Social security benefits (she will be 70), which she supposed to receive in July 2024. Because of this, she was automatically and retroactively enrolled in Medicare part A. She is still working and has been contributing to her HSA account until the end of March 2024. We had no idea, that she should has stopped contributing to her HSA 6 months before applying for SS. We asked her HSA administrator to send her a check for excess contributions dating back to January 2024 thinking that the 6 month period would start in January. A few days ago her application for SS benefits was approved by the Social Security Administration, but it shows that her Medicare Part A coverage started in October 2023 not in January 2024 as we originally thought (benefits start date July 2024).

My questions:

1. Does she have to file another excess contribution form for October-December 2023 period?

2. We already filed 2023 joint tax return, do we have to file an amended 2023 tax return or is there any other easier way to correct this issue?

3. Is her employer going to issue corrected W-2 forms for year 2023, since the amount in Box 12 code W would change?

4. Does she have to pay any excise tax or penalties?

5. If we have to file an amended tax return, do we have to file the state return also?

I don't believe that our state taxes will be affected by this change.

Thank you,

Not A Product Question

Best answer by dmertz

1. To avoid a penalty and double taxation of the excess contribution for 2023, Yes, a return of the excess 2023 contribution must be obtained.

2. Yes, the 2023 federal income tax return must be amended regardless of whether a return of excess 2023 contribution is obtained.

3. No, the employer does not change the W-2 under these circumstances.

4. Assuming that the filing of the 2023 tax return was timely, the deadline to obtain a return of the excess contribution made for 2023 is October 15, 2024, otherwise there will be an penalty on and double taxation of the excess amount.

5. Generally, Yes, because the required addition of the excess amount to 2023 federal AGI will likely increase taxable state income.

dmertzAnswer

Employee

1. To avoid a penalty and double taxation of the excess contribution for 2023, Yes, a return of the excess 2023 contribution must be obtained.

2. Yes, the 2023 federal income tax return must be amended regardless of whether a return of excess 2023 contribution is obtained.

3. No, the employer does not change the W-2 under these circumstances.

5. Generally, Yes, because the required addition of the excess amount to 2023 federal AGI will likely increase taxable state income.

BoomhauserAuthor

@dmertzThank you, so the HSA administrator is going to issue new 1099-SA or 5498 forms for 2023 tax year, and based on those forms we would have to file an amended 2023 return?

I'm thinking the only changes will be made to form 8889 and possibly 8880, am I right?

What would be the reason for the amended tax return?

Thanks,

dmertz

Employee

No new or corrected forms will be issued for 2023.

When amending, in TurboTax you'll just revisit the HSA section, indicate Medicare coverage for October through December, then indicate that you'll remove the excess (which you will already have done by October 15, 2024). You must also indicate at the top of the Form 1040-X that it is being "Filed pursuant to section 301.9100-2." The excess will be added to income, so you'll owe the tax due to the increase in taxable income. Line 9 of the 2023 Form 8889 will change to show the lower employer contribution, reduced by the amount of the excess that will be added as income.

Investment gains required to be distributed along with the excess will be taxable on your 2024 tax return.