form 8889 is being generated for a 2023 over contribution to a HSA and requires us answer coverage of HDHP question. We were covered by Medicare in 2024.

[BillM223]

When an excess HSA contribution is carried over to the next year, it is treated like a personal contribution in the next year. 

If you make any contributions to or take any distributions from an HSA, then you must add form 8889 to your return.

As you can see, when you have a carryover, then, you have to add form 8889.

There are three cures for the excess HSA carryover:

1. Withdrawing the excess, which MUST BE DONE BEFORE THE DUE DATE OF RETURN in the year that the excess is originally created (this prevents the carryover), or

2. Using the excess carryover up as a personal contribution in a subsequent year in which you are eligible to contribute to an HSA, or 

3. Taking a distribution equal to the excess but NOT for qualified medical expenses - the distribution will be added to Other Income and also assessed a 20% excise tax ("penalty") - this will terminate the carryover

The carryover is assessed a 6% excise tax (penalty) each year it is carried over. The penalty is actually 6% of the SMALLER of the carryover or the value in your HSA at the end of the tax year.

Once you are on Medicare, you can no longer do #1 or #2, only #3 is available to you. The carryover will continue to be assessed a 6% penalty each year until you either do #3 or your HSA balance goes to zero.

So you need to ask yourself, how soon will my HSA run out? Do some arithmetic on your fingers and see if you have a large amount of cash in your HSA that you need to protect, or if you are about to run your HSA balance to zero, where the 6% won't matter any more.