I found out that I’m currently insured over both my employers (on is full time and on is part time) one with an HRA one with an HSA what consequences has that.

[Raflur]

I got a new job and switched at my old job from full to part time right before my new health insurance got activated. At my old job I had an HRA were I’m only able to pay medical expenses (I think even there are some restrictions). I thought I would simply be kicked out of it after I switched to part time but I think I was wrong and I maxed out the contribution limit for my new employers HSA. On top of that I found out that Im even though I’m part time from the beginning of the year I’m still insured at my (now) part time job(has something to do with the measuring time).
What for consequences has that for my tax return this year I assume that I need to pay penalties/fines and taxes on the Hsa money, but can I keep the account? Also should I simply quit my part time (HRA) job or does it even matter at this point?

[dmertz · Accepted solution]

Being covered by the HRA for the entire year makes you ineligible to contribute to an HSA for the entire year.  Your HSA contributions are therefore excess contributions that are subject to a 6% penalty every year that they remain in the HSA.  To avoid the penalty you must request an explicit return of the excess contributions before the due date of your tax return, including extensions, (not a regular distribution) for the year for which the contributions were made.

Failure to obtain a return of excess contribution by the due date of the tax return will result in the contribution not being excluded from your income and continued penalties each year that the excess remains.  To eliminate the excess after the due date of the tax return you would either need to be able to apply the excess as an HSA contribution in the future when you are eligible to contribute or to obtain a taxable regular distribution from the HSA.  A taxable distribution to correct and excess contribution is one that is not applied to qualified medical expenses.  It means double taxation of that money (because that money was not originally excluded from income) and is subject to a 20% penalty if made before you reach age 65, so you  really want to avoid having to do that.

[Raflur]

First thank you so far!

So as I see it there are pretty much only 3 options how to handle it:

After due date:

1) Paying myself out before retirement which means I pay normal income tax on it and 20% penalty on it (and the 6% I assume)

2) Paying 6% penalty for it on my tax return and putting the excess amount from last year in this year HSA (assuming I don’t have an HRA but an HSA).

Before due date:

3) Contact my HSA provider explain the situation and hopefully getting the money back then I only deal with whatever fees the HSA provider charges.

I would obviously try number 3 but there is another part I need some information on:

As I mentioned I’m also this year insured on my old job (which means since January 1) although I’m now part time there and they normally don’t insure part timer; but I worked full time in the measurement timeframe. I didn’t expected/knew that which means I can get insured this year or  need to cancel it (which I didn’t do because I didn’t expected that and had to many other things on my mind).

I definitely want the HSA account over the HRA account in the long run.

1) If I keep the HRA for this year I can’t contribute this year in the HSA and I also need to get the contributions back which I did already this year, correct?

2) If I quit my part time job with the HRA (since  they most likely doesn’t cancel my benefits otherwise) do I get the right to contribute to the full 2023 HSA contribution limit or do I need to pay attention to reduce the amount by a certain amount which comes from the time I had an HRA (lets say 1 month/31 days).

I want to thank you again for the direct, fast and helpful help.

[dmertz]

With regard to #3, if there is any investment gain required to accompany the return of contribution, the gain will be taxable.

With regard to how HSAs and HRAs interact, I suggest reviewing IRS Revenue Ruling 2004-45:

https://www.irs.gov/pub/irs-drop/rr-04-45.pdf 

I believe that you would have had to suspend the HRA before the beginning of the HRA coverage period to be eligible to contribute to an HSA during the coverage period.  You are only an eligible individual for months that the HRA was not available to cover qualified medical expenses.

If you are an eligible individual on December 1, you can make a full-year's contribution to the HSA under the last-month rule.  However, the last-month rule requires that you remain an eligible individual throughout the following year, otherwise there amount contributed that you would not have been eligible to contribute were not for the last-month rule becomes subject to income tax and a 10% additional tax (but is not an excess contribution).