Medicare and HSA 2022

[Cinna13604]

I contributed to HSA all of 2022. In Jan 2023 unexpectedly 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). 

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

I read that I could withdraw $1000 before April 18, 2023 to avoid the penalty (and can just pay the taxes on that $1000). How do I reflect all this in Turbo tax in the questions/interview - because there is no place to reflect the withdrawal of that excess contribution of $1000 (which was NOT reflected in the 1099-SA).

Further, how does this affect my 2023 tax form?

[RalphH1]

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!

[Cinna13604]

Hi, Thanks for your reply and I see some of what you said as the behavior by Turbo Tax but not all of it. Here is what I saw on the screen. I have hidden some of the actual amounts but you will get the idea. 

TT Question: Did “Cinna13604” have Medicare at any time in 2022? My Answer: Yes

Since the screen copy/paste is not working here -  just as you suggested, I filled in "Medicare or None" for "Type of HDHP coverage" for July 2022-Dec 2022 and hit "Calculate Max contribution limit" and it did show me the max amount - which of course was exactly one half of my 2022 contribution - so far so good (let's say my total contribution was 2000 and the max contribution was 1000, so the excess is 1000). But once I hit "Continue" no where did it ask me whether I am going to take that out. Instead it went to the question "Did you overfund your HSA in 2021". 

In all of this, still there is no way to report that excess 1000 I need to withdraw; nor to report as an income. Nothing really changed in my total tax I need to pay. 

So if you could further guide me thru this, I would be grateful.

[RalphH1]

What happens if you continue from the screen with the question about possible 2021 overfunding? The very next one should be the one we’re looking for (it just has to find out about 2021 on the way, as that would be included in the total calculation…). Even if you don’t see it next, though, please continue. If you’re not seeing it eventually (before the HSA Summary at the end), then I’m thinking we need to delete the HSA entries and re-enter them, as the program has become stuck on a scenario without excess contributions and isn’t updating.

To do this, select “Tax Tools,” then “Tools,” then “Delete a Form.” Then click the “Delete” link next to anything that starts with “Form 8889.” (Or if you’re using the downloadable version of TurboTax, just go to “Forms Mode,” select the 8889s and click the “Delete Form” button.) Then let’s see if the excess contribution screen comes up after re-entering…

[Cinna13604]

Hi @RalphH1 

Again, I appreciate your patience and help very much. Hopefully we are getting closer to the answer here. 

I tried deleting the form(s) 8889 and that still didn't work. I started a brand new 'test' return and entered the numbers from my W2 and 1099-SA. Here is the sequence of questions AFTER I entered 1099-SA. (I have replaced my name with "YOUR").

"Now Let's work on YOUR HSA'; Did YOU inherit this HSA ("no"); "Let's enter HSA contributions"; "Did your employer tell you about any other contributions"; "Did YOU have Medicare at any time in 2022" (Yes); and the months July2022-Dec 2022 as Medicare OR None; It showed the Max contribution of 1000 as expected; 

Then "Did you overfund HSA in 2021" (No); then HSA Summary appeared. 

Then "What type of high deductible plan you had on Dec 1, 2021"; Here the options were "Family", "Self", "None" - and it said that, if I had HDHP on Dec 1, 2021 BUT failed to be an eligible individual for other reasons, I should choose "None" - here I chose "Self"

Next question: Did YOUR lapse HDHP coverage in 2022 was due to Disability OR other reasons. I chose "Other reasons". 

Then it asked me for the HSA contributions I made in 2021; what type of HDHP coverage I had for each month in 2021. I entered ALL the months - which is true. 

Then it came to the last question/comment in the series: 

"Additional income under the last month rule" - and it read like this:

"Good News! We have determined you don't need to include any income under the last month rule

In rare circumstances you may need to change this number if your marital status changed in 2021 or 2022

Income to include under the last month rule" and there is a box to fill in a number. 

Since my marital status DID NOT change either in 2021 OR in 2022, I left this blank. 

Please let me know if this is where under the "Additional income under the last month rule" I am supposed to fill in that excess contribution of $1000.

And apologize for the long winded post but I am giving all the details I can to give you the proper picture.

[RalphH1]

Since you were covered for all of 2021, the “Last Month Rule” should be irrelevant, and the no-income result it’s giving you about that is correct, although it seems to be asking you extra, unneeded questions. We definitely don’t want to put the 2022 excess contribution amount in that field where you can edit 2021, though (as it’s handled differently).

Are you able to print your return, and if so, do you see an amount on line 8f of Schedule 1? (I’m sort of grasping with that question!) Also, are you using the downloadable or online version of our program? And is your entire 2022 HSA contribution amount on your W-2, with a box 12 “W”?

Cinna13604, sometimes it’s a good idea to get a call from us (like this) to troubleshoot these kinds of issues, as doing it here can be trickier. (And although I’m finding it mysterious that you’ve never seen the main screen that we need, it’s possible I’m missing something obvious that someone who shares your screen won’t.) But I do appreciate your patience as well(!), and if you’d rather continue here, I’ll circle back in the morning to help. (Unless someone who’s seen this exact thing comes along in the meantime and solves it!)

[Cinna13604]

@RalphH1 

Here is the latest on this saga 🙂 

1. I wasn't even aware of Schedule 1...on the Side tree, I didn't see Schedule 1 at all. So went to Forms Menu and did a search on Schedule 1. Then it said 'generating Schedule 1' (that in of itself implied there was nothing in it) and sure enough, the generated Schedule 1 (when I opened it), had blanks in all fields (except for our names).  On Line 8(f) "Income from Form 8889" was blanks.

2. Accordingly, on 1040 Form (ours is 1040-SR because we are Seniors - not sure if that matters), line 8 "Other Income from Schedule 1, Line 10" was also blanks.

3. Then I took a chance and on Schedule 1, Line 8f, did a CTRL-D to override and put in my 1000. Then the tax due went up (as expected) but this is where something strange happened. When I first ran the Federal Review and Smart Check - it produced errors citing my override amount as the issue. Then I removed the override by 'Cancel Override' option. But redid the same again (deleting Schedule 1; regenerating; using the CTRL-D and entered the same amount). Then everything worked - and the override amount I entered appeared on 1040 Form Line 8; no errors were produced with Federal Review and Smart Check. 

Having said all this: (a) I wouldn't mind talking to Turbo Tax to ensure these were the correct steps (b) Understand why the question you were anticipating didn't appear. That way I can rest easy.

Please let me know how I can call Turbo Tax?

Thanks again

[BillM223]

"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.