My husband and I are on Medicare & pay $100/month into our HSA from our checking account. We use the HSA only for medical bills. Do we now owe taxes on that $100/mo?

[powjea70]

We make HSA payments from taxed income and expect a tax credit on the $100/mo payments, not an extra 6%tax. What are we doing wrong?

[BillM223]

Yes.

You are not permitted to make contributions to an HSA if you don't have HDHP insurance coverage. Medicare conflicts with HDHP coverage for purposes of the HSA.

So it sounds like all your contributions to an HSA (at least since you went on Medicare) will be declared as in excess. You will have to withdraw these amounts (if you can) and pay up to a 6% penalty for any amount that you have to carry over to the next year.

NOTE: the 6% penalty is actually 6% of the smaller of the amount of the carryover or the value of your HSA at the end of the year. So eventually, your HSA will go to zero (since you can't contribute to it), and your penalty will go to zero as well.

Your HSA custodian/bank should have explained this to you.