Medicare and HSA 2022

After you indicate that you made HSA contributions for 2022 in the TurboTax program, you’ll see a screen saying, “Let’s maximize your contribution limit,” where you indicate high-deductible coverage or “Medicare or None” (which you’ll of course do for July through December). After you continue from that screen, the program should tell you the excess amount, advising you to take it out by April 18, and asking how much you will take out. Once you do this, the tax treatment should be correct, with the “pre-tax” benefit (if the contributions were made at work) undone on line 1f of Schedule 1, flowing through to line 8 of your 1040.

Note that your $1,500 distribution amount is handled earlier in the process. Answering “yes” on the “Did you use your HSA to pay for anything in 2022?” screen allows you to enter your 1099-SA numbers box-for-box. The program asks if the funds were used on qualified expenses, then calculates the tax (if any). It then moves on to the screens (discussed above) regarding contributions, which are usually a completely separate topic.

Regarding 2023, since contributions to your HSA will be a non-issue (assuming you continue with Medicare), you’ll have distributions (or nothing at all) to report on that return. You can keep the account itself as long as you want (as Medicare only affects the ability to contribute additional funds), and tax treatment of the money that eventually comes out will be the same as always (no tax if used on qualified expenses).

@Cinna13604, if you're not seeing the screens I mentioned when you get back into the program, please re-post here, so we can make sure your HSA is correctly reported!

"I had to retire and enrolled in Medicare - which became retroactive July 1, 2022, thus the contributions I made plus the contributions my employer made and any earnings on them from 7/1/2022-12/31/2022 is deemed excess contributions (let's say this is $1000). "

Yes, once you are well beyond 65, when you apply for Medicare, the SSA backs up 6 months to retroactively apply coverage, which can be a hassle for taxpayers with HSAs.

"I also had actual distributions of $1500 in Medical expenses for 2022. My Form-1099-SA for 2022 only reflects $1500. "

This is also correct, because the 1099-SAs issued in response to transactions resulting from excess contributions generally come out for the next tax year (i.e., 2023). Thus you will likely get two 1099-SAs early next year: one for the actual distribution for the withdrawal of excess contributions and the other for the earnings on the excess contributions. These will both be entered on your 2023 return in 2024.

"I read that I could withdraw $1000 before April 18, 2023 to avoid the penalty (and can just pay the taxes on that $1000). "

You can avoid the 6% penalty for the carryover of the excess to next year this way. However, this may not matter (see later).

"because there is no place to reflect the withdrawal of that excess contribution of $1000"

I see that Ralph tried to get you to that screen, but he is correct that sometimes the dynamic nature of the screens in TurboTax means that you can't get back to where you want to go. The way you fix that is to do what I call a "reset" to really erase all HSA data (see below).

"$1000 (which was NOT reflected in the 1099-SA)."

As I noted above, the 1099-SAs for this year generally don't appear until early next year (it depends on when these events happen and how on the ball your HSA custodian is). But in general, 1099-SAs that are create by events on your 2022 return are not intended to be entered until your 2023 return, which means that they generally don't get to you until early 2023.

"how does this affect my 2023 tax form?"

If there are excess HSA contributions carried over to "next" year, then if you do not discharge the excess (by letting be considered part of the contributions for the next year), you will incur the 6% penalty again. However, since once you go on Medicare, you cannot contribute to an HSA any longer, you are stuck.

At that point, the only way to stop the 6% year after year, is to make a distribution for the carryover amount that is not for medical expenses, which gets added to your Other Income and also incurs a 20% penalty.

**good news **

The "6%" penalty is 6% of the smaller of the amount carried over (of the excess) or the balance in your HSA at the end of the previous year (December 31, 2022 for tax year 2022). So when your HSA balance goes to zero, then your penalty goes to zero.

So you need to consider at what point you will finish spending everything in your HSA, and whether a 6% penalty is that big of a deal. If you are about to empty your HSA, then your penalty will go away.

**reset**

If you want to get rid of all your HSA data to start over, please do the following:

NOTE: if you see a question "What type of High Deductible Health Plan did you have any December 1, 2021?" (yes, 2021), be sure to answer "NONE". 

1. make a copy of your W-2(s) (if you don't have the paper copies)

2. delete your W-2(s) (use the garbage can icon next to the W-2(s) on the Income screen

*** Desktop***

3. go to View (at the top), choose Forms, and select the desired form. Note the Delete Form button at the bottom of the screen.

*** Online ***

3. go to Tax Tools (on the left), and navigate to Tools->Delete a form

4. delete form(s) 1099-SA (if one), 8889-T, and 8889-S (if one)

5. go back and re-add your W-2(s), preferably adding them manually

6. continue with your return.